Starting from a blank page? Semantic similarity in central bank communication and market volatility

Michael Ehrmann and Jonathan Talmi

Journal of Monetary Economics, 2020, vol. 111, issue C, 48-62

Abstract: Central banks often draft press releases announcing monetary policy decisions starting from the previous release. This makes it straightforward to see how the content has evolved, but may make substantial updates harder to interpret, as markets learn to expect only minor updates. Using variation in the drafting process at the Bank of Canada, this paper finds that similar press releases reduce market volatility, whereas volatility rises when substantial changes occur after sequences of similar statements. A comparison over time and across central banks shows that market sensitivity to similarity adjusts to the drafting practice of central banks.

Keywords: Central bank communication; Semantic similarity; Volatility; ARCH models; Interest rates (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (57)

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Related works:
Working Paper: Starting from a blank page? Semantic similarity in central bank communication and market volatility (2017)
Working Paper: Starting from a Blank Page? Semantic Similarity in Central Bank Communication and Market Volatility (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:111:y:2020:i:c:p:48-62

DOI: 10.1016/j.jmoneco.2019.01.028

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