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Analysing monetary policy statements of the Reserve Bank of India

Aakriti Mathur () and Rajeswari Sengupta ()

No 08-2019, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy. Next, we study the influence of various aspects of monetary policy communication on financial markets. Using natural language processing tools, we construct measures of linguistic and structural complexity that capture governor-specific trends in communication. We find that while RBI’s monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years. We also find that there has been a persistent semantic shift in RBI’s monetary policy communication since the adoption of inflation-targeting. Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.

Keywords: Monetary policy; central bank communication; linguistic complexity; financial markets; textual analysis; natural language processing (search for similar items in EconPapers)
JEL-codes: E52 E58 G12 G14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019-05-22
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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