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Narrative monetary policy surprises and the media

Saskia ter Ellen (), Vegard Larsen and Leif Thorsrud

No No 06/2019, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: We propose a method to quantify narratives from textual data in a structured manner, and identify what we label "narrative monetary policy surprises" as the change in economic media coverage explained by central bank communication accompanying interest rate meetings. Our proposed method is fast and simple, and relies on a Singular Value Decomposition of the different texts and articles coupled with a unit rotation identifi cation scheme. Identifying narrative surprises in central bank communication using this type of data and identifi cation provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a signifi cant effect on subsequent media coverage. In turn, narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication. Our study highlights the importance of written central bank communication and the role of the media as information intermediaries.

Keywords: communication; monetary policy; factor identification; textual data (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019-10
New Economics Papers: this item is included in nep-big, nep-cba, nep-mac and nep-mon
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