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The power of policy words: PBC communications and their impact on capital flows amidst global crises

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  • Qiu, Yue
  • Wang, Kaixin
  • Xie, Wenjing
  • Zheng, Xiangzhong

Abstract

This paper investigates the strategic role of the People's Bank of China's (PBC) monetary policy communications in shaping international capital flows, particularly during periods of economic uncertainty and crisis. By developing and applying a novel semi-supervised machine learning method to analyze the content of PBC's policy announcements, we extract thematic insights that have significantly influenced global investment behaviors. Our findings reveal that the nuances in PBC's communication have had a pronounced impact on the allocation of international capital, with significant shifts observed during the 2008 global financial crisis and the COVID-19 pandemic. The research demonstrates how subtle changes in communicated topics, ranging from inflation and regulation to macroeconomic uncertainties, resonate with and redirect global investor sentiments and strategies. This study underscores the critical role of the PBC in China's open economy during crises and the broader impact of central bank communications on the global financial system, providing essential insights for policymakers and investors navigating international capital flows in times of crisis.

Suggested Citation

  • Qiu, Yue & Wang, Kaixin & Xie, Wenjing & Zheng, Xiangzhong, 2025. "The power of policy words: PBC communications and their impact on capital flows amidst global crises," China Economic Review, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:chieco:v:93:y:2025:i:c:s1043951x25001336
    DOI: 10.1016/j.chieco.2025.102475
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • 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
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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