IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Central bank sentiment and policy expectations

Listed author(s):
  • Hubert, Paul

    ()

    (OFCE - SCiences Po.)

  • Labondance, Fabien

    ()

    (Université de Bourgogne Franche-Comté — CRESE, OFCE — Sciences Po)

We explore empirically the theoretical prediction that optimism or pessimism have aggregate effects, in the context of monetary policy. First, we quantify the tone conveyed by FOMC policymakers in their statements using computational linguistics. Second, we identify sentiment as the unpredictable component of tone, orthogonal to fundamentals, expectations, monetary shocks and investors’ sentiment. Third, we estimate the impact of FOMC sentiment on the term structure of private interest rate expectations using a high-frequency methodology and an ARCH model. Optimistic FOMC sentiment increases policy expectations primarily at the one-year maturity. We also find that sentiment affects inflation and industrial production beyond monetary shocks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2017/swp648.pdf
File Function: Full text
Download Restriction: no

Paper provided by Bank of England in its series Bank of England working papers with number 648.

as
in new window

Length: 53 pages
Date of creation: 17 Feb 2017
Handle: RePEc:boe:boeewp:0648
Contact details of provider: Postal:
Bank of England, Threadneedle Street, London, EC2R 8AH

Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
  2. Jeffrey Frankel, 2011. "Over-optimism in forecasts by official budget agencies and its implications," Oxford Review of Economic Policy, Oxford University Press, vol. 27(4), pages 536-562.
  3. Fligstein, Neil & Brundage, Jonah S & Schultz, Michael, 2014. "Why the Federal Reserve Failed to See the Financial Crisis of 2008: The Role of “Macroeconomics†as a Sense making and Cultural Frame," Institute for Research on Labor and Employment, Working Paper Series qt97k6t78z, Institute of Industrial Relations, UC Berkeley.
  4. Hubert, Paul & Maule, Becky, 2016. "Policy and macro signals as inputs to inflation expectation formation," Bank of England working papers 581, Bank of England.
  5. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
  6. Stephen Eliot Hansen & Michael McMahon & Andrea Prat, 2014. "Transparency and deliberation within the FOMC: A computational linguistics approach," Economics Working Papers 1425, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Mark Gertler & Peter Karadi, 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 44-76, January.
  8. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
  9. Hayo, Bernd & Neuenkirch, Matthias, 2010. "Do Federal Reserve communications help predict federal funds target rate decisions?," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1014-1024, December.
  10. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
  11. Leonardo Melosi, 2017. "Signalling Effects of Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 853-884.
  12. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, 03.
  13. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 509-541, 03.
  14. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  15. 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.).
  16. Paul Hubert, 2009. "An Empirical Review of Federal Reserve’s Informational Advantage," Documents de Travail de l'OFCE 2009-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  17. 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.
  18. repec:eee:dyncon:v:82:y:2017:i:c:p:289-311 is not listed on IDEAS
  19. Monika Piazzesi, 2002. "The Fed and Interest Rates - A High-Frequency Identification," American Economic Review, American Economic Association, vol. 92(2), pages 90-95, May.
  20. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, 06.
  21. Paul Hubert, 2015. "Revisiting the Greenbook’s relative forecasting performance," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 151-179.
  22. Fabio Milani, 2014. "Sentiment and the US Business Cycle," Working Papers 141504, University of California-Irvine, Department of Economics.
  23. Krippner, Leo, 2013. "Measuring the stance of monetary policy in zero lower bound environments," Economics Letters, Elsevier, vol. 118(1), pages 135-138.
  24. Emi Nakamura & Jón Steinsson, 2013. "High Frequency Identification of Monetary Non-Neutrality: The Information Effect," NBER Working Papers 19260, National Bureau of Economic Research, Inc.
  25. Christopher W. Crowe & S. Mahdi Barakchian, 2010. "Monetary Policy Matters; New Evidence Basedon a New Shock Measure," IMF Working Papers 10/230, International Monetary Fund.
  26. repec:pri:cepsud:161blinder is not listed on IDEAS
  27. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
  28. Lamont, Owen A., 2002. "Macroeconomic forecasts and microeconomic forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 265-280, July.
  29. David-Jan Jansen & Jakob De Haan, 2009. "Has ECB communication been helpful in predicting interest rate decisions? An evaluation of the early years of the Economic and Monetary Union," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 1995-2003.
  30. Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 399-474.
  31. Diego García, 2013. "Sentiment during Recessions," Journal of Finance, American Finance Association, vol. 68(3), pages 1267-1300, 06.
  32. Baeriswyl, Romain & Cornand, Camille, 2010. "The signaling role of policy actions," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 682-695, September.
  33. Robert G. King & Yang K. Lu & Ernesto S. Pastén, 2008. "Managing Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1625-1666, December.
  34. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
  35. Cook, Timothy & Hahn, Thomas, 1989. "The effect of changes in the federal funds rate target on market interest rates in the 1970s," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 331-351, November.
  36. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, 02.
  37. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
  38. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 387-422.
  39. Ricco, Giovanni, 2015. "A new identification of fiscal shocks based on the information flow," Working Paper Series 1813, European Central Bank.
  40. Apel, Mikael & Blix Grimaldi, Marianna, 2012. "The Information Content of Central Bank Minutes," Working Paper Series 261, Sveriges Riksbank (Central Bank of Sweden).
  41. Hubert Paul, 2017. "Qualitative and quantitative central bank communication and inflation expectations," The B.E. Journal of Macroeconomics, De Gruyter, vol. 17(1), pages 1-41, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0648. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Media Team)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.