Central Bank Communication Affects Long-Term Interest Rates

Fernando Chague and Rodrigo De-Losso, Bruno C. Giovannetti, Paulo Manoel
Authors registered in the RePEc Author Service: Bruno Cara Giovannetti and Rodrigo De-Losso

No 2013_07, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: We empirically study how the communication of the Central Bank of Brazil affects the term structure of interest rates. Using an algorithm that classifies the words from the Central Bank minutes into predetermined semantic themes, we estimate a time-series factor related to Central Bank optimism. Then, we show that the long-term interest rates are sensitive to the optimism factor: when Central Bank is more optimistic, long-term interest rates fall. The fact that minutes are released one week after the changes in the target rate allows us to identify the effect of the communication in isolation. Our result is in line with the idea that Central Bank communication can be an effective monetary policy instrument through its impact on market expectations, particularly at the longer maturities.

Keywords: Brazilian Central Bank; central bank communication; text mining (search for similar items in EconPapers)
JEL-codes: E58 G14 (search for similar items in EconPapers)
Date: 2013-05-13
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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