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Facing crisis, what should the central bank say?

Author

Listed:
  • Liu, Dayu
  • Li, Yingying
  • Zhao, Tingting
  • Xu, Kaishuo

Abstract

This study takes an innovative approach by incorporating sentiment context and applying cutting-edge natural language processing techniques to construct central bank communication index. Specifically, we utilize BERT to perform semantic embedding of central bank communication texts and employ a Dynamic Topic Model to categorize evolving themes over time. Based on this, we construct a novel ‘sentiment + topic’ communication index. Our findings reveal that during periods of crisis, effective central bank communication measures are generally consistent and are mainly confined to two themes—Financial and consumption policies and Market liquidity conditions. Other types of communication have limited effects and fail to simultaneously influence output and inflation. However, when facing different types of crises or pursuing distinct economic objectives, the optimal central bank communication strategy may vary, requiring an appropriate choice between Financial and consumption policies and Market liquidity conditions depending on the specific context.

Suggested Citation

  • Liu, Dayu & Li, Yingying & Zhao, Tingting & Xu, Kaishuo, 2026. "Facing crisis, what should the central bank say?," Finance Research Letters, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finlet:v:90:y:2026:i:c:s1544612325026364
    DOI: 10.1016/j.frl.2025.109387
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    Keywords

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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