What’s that noise? Analysing sentiment-based variation in central bank communication

Bernd Hayo and Johannes Zahner
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Johannes Zahner: Marburg University

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: To which degree can variation in sentiment-based indicators of central bank communication be attributed to changes in macroeconomic, financial, and monetary variables; idiosyncratic speaker effects; sentiment persistence; and random ‘noise’? Using the Loughran and McDonald (2011) dictionary on a text corpus containing more than 10,000 speeches and press statements, we construct sentiment-based indicators for the ECB and the Fed. An analysis of variance (ANOVA) shows that sentiment is strongly persistent and influenced by speaker-specific effects. With about 80% of the variation in sentiment being due to noise, our findings cast doubt on the reliability of conclusions based on variation in dictionary-based indicators.

Keywords: Sentiment index; monetary policy; central banks; Loughran and McDonald (2011) dictionary; information content of sentiment indices (search for similar items in EconPapers)
JEL-codes: C55 E58 E61 Z13 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-big, nep-cba, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:202241

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