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Spread the Word: International Spillovers from Central Bank Communication

Hanna Armelius (), Christoph Bertsch (), Isaiah Hull () and Xin Zhang

No 357, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We use text analysis and a novel dataset to measure the sentiment component of central bank communications in 23 countries over the 2002-2017 period. Our analysis yields three key results. First, using directed networks, we show that comovement in sentiment across central banks is not reducible to trade or financial ow exposure. Second, we find that geographic distance is a robust and economically significant determinant of comovement in central bank sentiment, while shared language and colonial ties are economically significant, but less robust. Third, we use structural VARs to show that sentiment shocks generate cross-country spillovers in sentiment, policy rates, and macroeconomic variables. We also find that the Fed plays a uniquely in uential role in generating such sentiment spillovers, while the ECB is primarily in uenced by other central banks. Overall, our results suggest that central bank communication contains systematic biases that could lead to suboptimal policy outcomes.

Keywords: communication; monetary policy; international policy transmission (search for similar items in EconPapers)
JEL-codes: E52 E58 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-big, nep-cba, nep-mac and nep-mon
Date: 2018-09-01
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