Words are not all created equal: A new measure of ECB communication

Matthieu Picault and Thomas Renault

Journal of International Money and Finance, 2017, vol. 79, issue C, 136-156

Abstract: We develop a field-specific dictionary to measure the stance of the European Central Bank (ECB) monetary policy (dovish, neutral, hawkish) and the state of the Eurozone economy (positive, neutral, negative) through the content of ECB press conferences. In contrast with traditional textual analysis, we propose a novel approach using term-weighting and contiguous sequence of words (n-grams) to better capture the subtlety of central bank communication. We find that quantifying ECB communication using our field-specific weighted lexicon helps to explain future ECB monetary decisions when considering an augmented Taylor rule. Regarding European stock market volatility, we find that markets are more (less) volatile on the day following a conference with a negative (positive) tone about the euro area economic outlook. Our indicators significantly outperform a textual classification based on the Loughran–McDonald or Apel–Blix Grimaldi dictionaries and a media-based measure of economic policy uncertainty.

Keywords: ECB; Central banking; Textual analysis; Monetary policy; Stock market volatility; Interest rates; Taylor rule (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (86)

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Working Paper: Words are not all created equal: A new measure of ECB communication (2017)
Working Paper: Words are not all created equal: A new measure of ECB communication (2017)
Working Paper: Words are not all created equal: A new measure of ECB communication (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:79:y:2017:i:c:p:136-156

DOI: 10.1016/j.jimonfin.2017.09.005

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