Monetary Policy Effects on the Chilean Stock Market: An Automated Content Approach

The latest financial crisis has increased the interest in understanding how monetary policy announcements impact financial markets. For the US there are several studies that cover this area of research, however, for emerging markets the number of studies is scarce. This paper studies how the Chilean stock market is affected by monetary policy announcements made by the Central Bank of Chile. In their monthly monetary policy meetings the Central Bank of Chile decides the monetary policy rate and circulates press releases that effectively explain their decision. The information contained in those documents include policy decisions for the current month, the central bank's economic outlook, and the signals about likely future central bank policy decisions. We therefore examine these monetary policy changes and the corresponding additional information from the meeting statements. Using Automated Content Analysis, we identify qualitative information from the statement releases of the Central Bank of Chile and create a quantitative measure for the signals indicating likely future monetary policy. This quantitative measure, which we call them sentiment score - proxies for the monetary policy tilt. We then evaluate how the surprise component of the sentiment scores - together with unexpected policy changes - impact Chilean financial assets.