Risk and Uncertainty in Central Bank Signals: An Analysis of MPC Minutes

This paper analyses the signal uncertainty implicit in the communications of the Bank of England's Monetary Policy Committee (MPC). Unlike previous studies, which seek to construct a qualitative uncertainty index that heavily relies on subjective interpretations of key expressions, we limit ourselves to lexical frequencies of those expressions. We establish seasonality in the term 'risk' that coincides with Inflation Report publication dates, and matches what we identify as a surprising degree of prima facie seasonality in interest rate changes. Our findings suggest that frequencies of key terms expressing signal uncertainty in MPC minutes may either yield proxy measures to the amount of information at the disposal of the MPC, or offer evidence for the presence of an irreducible kind of signal uncertainty that shows up as white noise, casting doubt on the soundness of the various qualitative uncertainty indices found in the literature.