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Text Mining and the Information Content of Bank of Canada Communications

Author

Listed:
  • Scott Hendry
  • Alison Madeley

Abstract

This paper uses Latent Semantic Analysis to extract information from Bank of Canada communication statements and investigates what type of information affects returns and volatility in short-term as well as long-term interest rate markets over the 2002-2008 period. Discussions about geopolitical risk and other external shocks, major domestic shocks (SARS and BSE), the balance of risks to the economic projection, and various forward looking statements are found to significantly affect market returns and volatility, especially for short-term markets. This effect is over and above that from the information contained in any policy interest rate surprise.

Suggested Citation

  • Scott Hendry & Alison Madeley, 2010. "Text Mining and the Information Content of Bank of Canada Communications," Staff Working Papers 10-31, Bank of Canada.
  • Handle: RePEc:bca:bocawp:10-31
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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/11/wp10-31.pdf
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    References listed on IDEAS

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    1. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
    2. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    3. Madeline Zavodny & Donna K. Ginther, 2005. "Does the Beige Book Move Financial Markets?," Southern Economic Journal, Southern Economic Association, vol. 72(1), pages 138-151, July.
    4. Balke, Nathan S & Petersen, D'Ann, 2002. "How Well Does the Beige Book Reflect Economic Activity? Evaluating Qualitative Information Quantitatively," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 114-136, February.
    5. David O. Lucca & Francesco Trebbi, 2009. "Measuring Central Bank Communication: An Automated Approach with Application to FOMC Statements," NBER Working Papers 15367, National Bureau of Economic Research, Inc.
    6. Michelle Bligh & Gregory D. Hess, 2006. "A Quantitive Assessment of the Qualitative Aspects of Chairman Greenspan's Communications," Computing in Economics and Finance 2006 213, Society for Computational Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Scott Hendry, 2012. "Central Bank Communication or the Media’s Interpretation: What Moves Markets?," Staff Working Papers 12-9, Bank of Canada.
    2. Luis E. Arango & Javier Pantoja & Carlos Velásquez, 2017. "Effects of the central bank’s communications in Colombia. A content analysis," Borradores de Economia 1024, Banco de la Republica de Colombia.
    3. Allard, Julien & Catenaro, Marco & Vidal, Jean-Pierre & Wolswijk, Guido, 2013. "Central bank communication on fiscal policy," European Journal of Political Economy, Elsevier, vol. 30(C), pages 1-14.
    4. Acosta, Miguel, 2015. "FOMC Responses to Calls for Transparency," Finance and Economics Discussion Series 2015-60, Board of Governors of the Federal Reserve System (U.S.).
    5. repec:bis:bisifb:44 is not listed on IDEAS
    6. Hansen, Stephen & McMahon, Michael, 2016. "Shocking language: Understanding the macroeconomic effects of central bank communication," Journal of International Economics, Elsevier, vol. 99(S1), pages 114-133.
    7. Kohei Kawamura & Yohei Kobashi & Masato Shizume & Kozo Ueda, 2016. "Strategic Central Bank Communication: Discourse and Game-Theoretic Analyses of the Bank of Japan's Monthly Report," UTokyo Price Project Working Paper Series 062, University of Tokyo, Graduate School of Economics.
    8. David Bholat & Stephen Hans & Pedro Santos & Cheryl Schonhardt-Bailey, 2015. "Text mining for central banks," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 33.
    9. repec:bis:bisifc:44-17 is not listed on IDEAS

    More about this item

    Keywords

    Financial markets; Monetary policy implementation;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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