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Up for count? Central bank words and financial stress

Author

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  • Blix Grimaldi, Marianna

    () (Monetary Policy Department, Central Bank of Sweden)

Abstract

While knowing there is a financial distress 'when you see it' might be true, it is not particularly helpful. Indeed, central banks have an interest in understanding more systematically how their communication affects the markets, not least in order to avoid unnecessary volatility; the markets for their part have an interest in better deciphering the message of central banks, especially of course with regard to the conduct of future monetary policy. In this paper we use a novel approach rooted in textual analysis to begin to address these issues. Building on previous work from textual analysis, we are able to use quantitative methods to help identify and measure financial stress. We apply the techniques to the European Central Banks Monthly Bulletin and show that the results give a much more complete and nuanced picture of market distress than those based only on market data and may help improve how the Central Banks communication is designed and understood.

Suggested Citation

  • Blix Grimaldi, Marianna, 2011. "Up for count? Central bank words and financial stress," Working Paper Series 252, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0252
    as

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    File URL: http://www.riksbank.com/upload/Dokument_riksbank/Kat_publicerat/WorkingPapers/2011/wp252.pdf
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    References listed on IDEAS

    as
    1. Leigh, Andrew & Wolfers, Justin & Zitzewitz, Eric, 2003. "What do Financial Markets Think of War in Iraq?," Research Papers 1785, Stanford University, Graduate School of Business.
    2. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    3. Morris Goldstein & Carmen M. Reinhart, 2000. "Assessing Financial Vulnerability: An Early Warning System for Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 100.
    4. repec:wsi:wschap:9789814749589_0011 is not listed on IDEAS
    5. David O. Lucca & Francesco Trebbi, 2009. "Measuring Central Bank Communication: An Automated Approach with Application to FOMC Statements," NBER Working Papers 15367, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial stress; central bank communication; textual analysis; logit distribution;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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