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The value of understanding central bank communication

Author

Listed:
  • Renaud Beaupain

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Alexandre Girard

    (EDF - EDF)

Abstract

This paper examines whether the communication of a central bank can complement its actions to coordinate market expectations and ultimately steer long-term interest rates. More specifically, we propose a measure of common understanding between the central bank and market participants and we assess how it alters the sovereign yield spreads of a sample of core and distressed countries in the euro area. We build a latent semantic analysis of the official transcripts of the press conferences that the European Central Bank holds at the end of each reserve maintenance period. We report empirical evidence supporting the importance of communication for implementing monetary policy decisions. Specifically, we show that the communication of the ECB was altered by the announcement of unconventional measures and that it significantly impacted sovereign spreads in the euro area.

Suggested Citation

  • Renaud Beaupain & Alexandre Girard, 2020. "The value of understanding central bank communication," Post-Print hal-02509297, HAL.
    • Handle: RePEc:hal:journl:hal-02509297
    DOI: 10.1016/j.econmod.2019.05.013
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    Cited by:

    1. Picault, Matthieu & Pinter, Julien & Renault, Thomas, 2022. "Media sentiment on monetary policy: Determinants and relevance for inflation expectations," Journal of International Money and Finance, Elsevier, vol. 124(C).
    2. Arango, Luis E. & Pantoja, Javier & Velásquez, Carlos, 2023. "A content analysis of the Central Bank's press releases in Colombia," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(3).
    3. Lin, Jianhao & Mei, Ziwei & Chen, Liangyuan & Zhu, Chuanqi, 2023. "Is the People's Bank of China consistent in words and deeds?," China Economic Review, Elsevier, vol. 78(C).
    4. Dimitris Anastasiou & Apostolos Katsafados, 2023. "Bank deposits and textual sentiment: When an European Central Bank president's speech is not just a speech," Manchester School, University of Manchester, vol. 91(1), pages 55-87, January.
    5. Jianhao Lin & Jiacheng Fan & Yifan Zhang & Liangyuan Chen, 2023. "Real‐time macroeconomic projection using narrative central bank communication," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(2), pages 202-221, March.

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    More about this item

    Keywords

    Central bank communication; Sovereign bond yield spreads; Monetary policy; Latent semantic analysis;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G01 - Financial Economics - - General - - - Financial Crises

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