Effects of the central bank’s communications in Colombia. A content analysis

We carry out a reading analysis that consists of two elements. First, we observe the coherence between monetary policy actions and press releases. In this case, we find that inflation and growth were significant factors in the adoption of policy measures between September 2004 and March 2016. Moreover, when inflation and economic growth both increase, the monetary policy tightens. Nevertheless, the coefficients of economic activity continue to be greater than hose of inflation. Second, monetary authority goes beyond explanations in press releases in the sense that there are some traces of forward guidance in a number of communications with varying degrees of commitment. We also assess whether Colombia’s central bank uses its communications as a complementary monetary policy tool and estimate the effectiveness of this strategy. To perform this assessment, we use machine learning to determine the semantic structure of the central bank´s communications. This technique allows us to extract semantic factors that are then used in structural VAR models to identify and measure the impact of these communications on inflation expectations. Our results indicate that Colombia’s central bank uses communications as a monetary policy tool and that this strategy influences market inflation expectations.