“Making Text Talk”: The Minutes of the Central Bank of Brazil and the Real Economy

This paper investigates the relationship between the views expressed in the minutes of the meetings of the Central Bank of Brazil’s Monetary Policy Committee (COPOM) and the real economy. It applies various computational linguistic machine learning algorithms to construct measures of the minutes of the COPOM. First, we create measures of the content of the paragraphs of the minutes using Latent Dirichlet Allocation (LDA). Second, we build an uncertainty index for the minutes using Word Embedding and K-Means. Then, we combine these indices to create two topic-uncertainty indices. The first one is constructed from paragraphs with a higher probability of topics related to “general economic conditions”. The second topic-uncertainty index is constructed from paragraphs that have a higher probability of topics related to “inflation” and the “monetary policy discussion”. Finally, we employ a structural VAR model to explore the lasting effects of these uncertainty indices on certain Brazilian macroeconomic variables. Our results show that greater uncertainty leads to a decline in inflation, the exchange rate, industrial production and retail trade in the period from January 2000 to July 2019.