EconPapers    
Economics at your fingertips  
 

A Forward Guidance Indicator For The South African Reserve Bank: Implementing A Text Analysis Algorithm

Ruan Erasmus () and Hylton Hollander ()
Additional contact information
Ruan Erasmus: Department of Economics, Stellenbosch University

No 04/2020, Working Papers from Stellenbosch University, Department of Economics

Abstract: The expansion of central bank communications and the increased use thereof as a policy tool to manage expectations have led to an area of research, semantic modelling, that analyses the words and phrases used by central banks. We use text-mining and text-analysis techniques on South African Reserve Bank monetary policy committee statements to construct an index measuring the stance of monetary policy: a forward guidance indicator (FGI). We show that, after controlling for market expectations, FGIs provide significant predictive power for future changes in the repurchase interest rate (the primary monetary policy instrument). Furthermore, we show that FGIs are primarily driven by inflation expectations, which highlights the strong link between the SARB's communication strategy and its inflation targeting mandate. In fact, we observe a systematic anti-inflation bias in the communicated stance of monetary policy---both absolutely and asymmetrically. The results are, however, sensitive to the selection of the dictionary used to analyse the text.

Keywords: Monetary policy; Text analysis; Forward guidance; Inflation targeting (search for similar items in EconPapers)
JEL-codes: C43 C53 E42 E47 E52 E58 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-big, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.ekon.sun.ac.za/wpapers/2020/wp042020/wp042020.pdf First version, 2020 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sza:wpaper:wpapers339

Access Statistics for this paper

More papers in Working Papers from Stellenbosch University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Melt van Schoor ().

 
Page updated 2021-03-28
Handle: RePEc:sza:wpaper:wpapers339