Perceiving central bank communications through press coverage

Pilar García and Diego Torres
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Pilar García: BANCO DE ESPAÑA
Diego Torres: BANCO DE ESPAÑA

No 2505, Working Papers from Banco de España

Abstract: We present evidence suggesting that a simple measure of central bank communication tone, as perceived and interpreted by the media, correlates with the performance of financial assets and market participants’ expectations. This correlation appears even stronger than that of indices constructed using more complex models, such as a large language models like BERT. We employ a straightforward quantitative index, inspired by the well-known Baker, Bloom and Davis (2016) paper, using a “bag of words” approach and semantic orientation to measure this media-perceived tone orientation in terms of dovishness or hawkishness. Our approach, which emphasises the perception by the press media, contrasts with previous research that focused primarily on central bank minutes or speeches. Our preliminary findings reveal a statistically significant correlation with the movements of 2, 5 and 10-year US Treasury yields, with reactions being faster and more pronounced for shorter maturities. Our index also shows a leading correlation with some measures of inflation expectations, investor sentiment proxies, the stock market and the dollar. Additionally, to account for the impact of COVID-19, we propose the use of Google search trends as a proxy variable.

Keywords: central bank communication; natural language processing; market perception; monetary policy; inflation expectations; bond yields; investor sentiment (search for similar items in EconPapers)
JEL-codes: C45 C81 D83 E50 E52 E58 G14 G17 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2025-01
New Economics Papers: this item is included in nep-big, nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2505

DOI: 10.53479/38922

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