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Analysing monetary policy statements of the Reserve Bank of India

Author

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  • Aakriti Mathur

    () (The Graduate Institute of International and Development Studies, Geneva)

  • Rajeswari Sengupta

    () (Indira Gandhi Institute of Development Research)

Abstract

In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy. Next, we study the influence of various aspects of monetary policy communication on structural complexity that capture governor-specific trends in communication. We find that while RBI's monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years. We also find that there has been a persistent semantic shift in RBI's monetary policy communication since the adoption of inflation-targeting. Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.

Suggested Citation

  • Aakriti Mathur & Rajeswari Sengupta, 2019. "Analysing monetary policy statements of the Reserve Bank of India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-012, Indira Gandhi Institute of Development Research, Mumbai, India.
  • Handle: RePEc:ind:igiwpp:2019-012
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    References listed on IDEAS

    as
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Covid-19 and Corporate India
      by Anurodh in Ajay Shah's blog on 2020-07-01 05:44:00

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    Cited by:

    1. Ashima Goyal & Prashant Parab, 2019. "Inflation convergence and anchoring of expectations in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Monique Reid & Pierre Siklos, 2020. "Building Credibility and Influencing Expectations- The Evolution of Central Bank Communication," Working Papers 10144, South African Reserve Bank.

    More about this item

    Keywords

    Monetary policy; central bank communication; linguistic complexity; financial markets; textual analysis; natural language processing;

    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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