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

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Author Info

  • Sheila Dow

    ()
    (Department of Economics, University of Stirling)

  • Matthias Klaes

    ()
    (Keele University, Centre for Economic Research)

  • Alberto Montagnoli

    ()
    (Department of Economics, University of Stirling)

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.

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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2007/05.

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Length: 29 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:kee:kerpuk:2007/05

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

Related research

Keywords: MPC; signal uncertainty; central bank uncertainty; word frequencies; uncertainty index; seasonality;

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