The power of policy words: PBC communications and their impact on capital flows amidst global crises

Yue Qiu, Kaixin Wang, Wenjing Xie and Xiangzhong Zheng

China Economic Review, 2025, vol. 93, issue C

Abstract: This paper investigates the strategic role of the People's Bank of China's (PBC) monetary policy communications in shaping international capital flows, particularly during periods of economic uncertainty and crisis. By developing and applying a novel semi-supervised machine learning method to analyze the content of PBC's policy announcements, we extract thematic insights that have significantly influenced global investment behaviors. Our findings reveal that the nuances in PBC's communication have had a pronounced impact on the allocation of international capital, with significant shifts observed during the 2008 global financial crisis and the COVID-19 pandemic. The research demonstrates how subtle changes in communicated topics, ranging from inflation and regulation to macroeconomic uncertainties, resonate with and redirect global investor sentiments and strategies. This study underscores the critical role of the PBC in China's open economy during crises and the broader impact of central bank communications on the global financial system, providing essential insights for policymakers and investors navigating international capital flows in times of crisis.

Keywords: Central bank communication; International capital flows; Financial crisis; Textual analysis; Topic modeling (search for similar items in EconPapers)
JEL-codes: D81 E52 E58 F32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:93:y:2025:i:c:s1043951x25001336

DOI: 10.1016/j.chieco.2025.102475

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