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Risk and Uncertainty in Central Bank Signals: An Analysis of MPC Minutes

Sheila Dow, Matthias Klaes and Alberto Montagnoli ()

No KERP 2007/05, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: This paper analyses the signal uncertainty implicit in the communications of the Bank of England's Monetary Policy Committee (MPC). Unlike previous studies, which seek to construct a qualitative uncertainty index that heavily relies on subjective interpretations of key expressions, we limit ourselves to lexical frequencies of those expressions. We establish seasonality in the term 'risk' that coincides with Inflation Report publication dates, and matches what we identify as a surprising degree of prima facie seasonality in interest rate changes. Our findings suggest that frequencies of key terms expressing signal uncertainty in MPC minutes may either yield proxy measures to the amount of information at the disposal of the MPC, or offer evidence for the presence of an irreducible kind of signal uncertainty that shows up as white noise, casting doubt on the soundness of the various qualitative uncertainty indices found in the literature.

Keywords: MPC; signal uncertainty; central bank uncertainty; word frequencies; uncertainty index; seasonality (search for similar items in EconPapers)
JEL-codes: D81 E12 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-02
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pke
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