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The financial market impact of ECB monetary policy press conferences - a text based approach

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  • Parle, Conor

    (Central Bank of Ireland)

Abstract

Using methods from natural language processing I create two measures of the monetary policy tilt of the ECB entitled the “Hawk-Dove Indices”, that outline the beliefs of the ECB on the current state of the economy and the outlook for growth and inflation. These measures closely track interest rate expectations over the tightening and loosening cycle, and can provide a useful measure of monetary policy tilt at zero lower bound episodes and contains information about the state of the economy. I exploit the time lag between decision announcements and the ECB’s monetary policy press conference to assess the immediate financial market impact of changes in communication within the press conference, free from the effects of the shock from the monetary policy decision. Consistent with the literature on the information channel of monetary policy, I find a non-negligible positive (negative) effect on stock prices of a more hawkish (dovish) tone in the press conference, indicating that the ECB reveals “private information” during these press conferences, and that market participants internalise this as good (bad) news regarding the future state of the economy, rather than internalising a future potential increase (decrease) in interest rates. This effect is stronger prior to the introduction of formal forward guidance, suggesting that since then ECB communication has been less surprising to markets in recent times.

Suggested Citation

  • Parle, Conor, 2021. "The financial market impact of ECB monetary policy press conferences - a text based approach," Research Technical Papers 4/RT/21, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:4/rt/21
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    Cited by:

    1. Niţoi, Mihai & Pochea, Maria-Miruna & Radu, Ştefan-Constantin, 2023. "Unveiling the sentiment behind central bank narratives: A novel deep learning index," Journal of Behavioral and Experimental Finance, Elsevier, vol. 38(C).
    2. Sinem Kandemir & Peter Tillmann, 2023. "Not all ECB meetings are created equal," MAGKS Papers on Economics 202312, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Ferrara, Federico Maria & Angino, Siria, 2022. "Does clarity make central banks more engaging? Lessons from ECB communications," European Journal of Political Economy, Elsevier, vol. 74(C).
    4. Pinar Deniz & Thanasis Stengos, 2025. "Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB," JRFM, MDPI, vol. 18(4), pages 1-19, April.
    5. Kanelis, Dimitrios & Siklos, Pierre L., 2025. "Emotion in euro area monetary policy communication and bond yields: The Draghi era," Discussion Papers 16/2025, Deutsche Bundesbank.
    6. Klose, Jens & Barry, Mamdou-Lamine & Bruns, Brenton Joey & Kandemir, Sinem & Smirnov, Victor & Tillmann, Peter, 2025. "The Emotions of Monetary Policy," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325365, Verein für Socialpolitik / German Economic Association.
    7. Maran, Raluca, 2022. "Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach," MPRA Paper 114855, University Library of Munich, Germany.
    8. Vyshnevskyi, Iegor & Jombo, Wytone & Sohn, Wook, 2024. "The clarity of monetary policy communication and financial market volatility in developing economies," Emerging Markets Review, Elsevier, vol. 59(C).
    9. Jonathan Hambur & Qazi Haque, 2024. "Can we Use High‐Frequency Data to Better Understand the Effects of Monetary Policy and its Communication? Yes and No!," The Economic Record, The Economic Society of Australia, vol. 100(328), pages 3-43, March.
    10. Aleksandra Rutkowska & Magdalena Szyszko, 2024. "Dictionary-based sentiment analysis of monetary policy communication: on the applicability of lexicons," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(6), pages 5421-5444, December.
    11. Jung, Alexander & Mongelli, Francesco Paolo, 2025. "Central bank communication with non-experts: insights from a randomized field experiment," Working Paper Series 3103, European Central Bank.

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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