Monetary Policy in the Media Spotlight: Sentiments, Signals, and Economic Impact

Firmin Ayivodji, Etienne Briand, Kevin Moran and Dalibor Stevanovic
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Firmin Ayivodji: International Monetary Fund
Etienne Briand: University of Quebec in Montreal
Kevin Moran: Laval University
Dalibor Stevanovic: University of Quebec in Montreal

No 26-03, Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management

Abstract: News media coverage of monetary policy is not a passive transcript of central-bank communication: it filters announcements, macroeconomic news, and editorial choices into narratives that move expectations and policy decisions. We embed media sentiment into a behavioral New-Keynesian model in which the central bank reacts to sentiment and sentiment follows an explicit law of motion. We construct monetary-policy sentiment indicators from more than 50,000 Canadian newspaper articles using dictionary methods, transformer models, and a generative-AI framework. Media sentiment shifts household inflation and wage expectations, improves out-of-sample forecasts of GDP growth and inflation, and loads positively on the Bank of Canada's estimated Taylor rule once treated as endogenous. A Bayesian SVAR identifies anticipated and unanticipated monetary-policy shocks together with a narrative shock; the narrative shock contributes a non-trivial share of medium-horizon macroeconomic variance, and a counterfactual that shuts down the dynamic feedback from media sentiment attenuates the propagation of monetary policy to output and prices.

Keywords: Monetary policy; text analysis; news media; machine learning; forecasting (search for similar items in EconPapers)
JEL-codes: C32 C55 D84 E52 E58 E71 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:bbh:wpaper:26-03

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