Spread the Word: International spillovers from central bank communication

Abstract

We use computational linguistic methods and a novel dataset to measure the sentiment component of central bank communications in 23 countries over the 2002-2016 period. We first construct a Granger causality network to identify how sentiment is transmitted across central banks. The network structure suggests that comovement in sentiment is not reducible to comovement in output across countries. We also show that some central banks in the network, such as the Federal Reserve and the Bundesbank, tend to cause sentiment shifts in other central banks; whereas other central banks, such as the European Central Bank and the Bank of Japan, tend to be shifted by other central banks. Finally, we use a structural VAR to demonstrate that sentiment shocks generate crosscountry spillovers in sentiment, policy rates, and real variables.

A Forward Guidance Indicator for the South African Reserve Bank: Implementing a Text Analysis Algorithm

“…The analysis yields the important result that sentiment shocks can generate cross-country spillovers in sentiment, policy rates, and unemployment (Armelius et al 2018, 32). Moreover, Armelius et al (2018) find that the Fed is instrumental in prompting sentiment spillovers, while the ECB is predominantly influenced by other central banks. Although the SARB was not among the 23 countries considered by Armelius et al (2018), it is conceivable that the SARB might be vulnerable to spillovers from other central banks.…”

“…Moreover, Armelius et al (2018) find that the Fed is instrumental in prompting sentiment spillovers, while the ECB is predominantly influenced by other central banks. Although the SARB was not among the 23 countries considered by Armelius et al (2018), it is conceivable that the SARB might be vulnerable to spillovers from other central banks. In this instance, communication by the SARB would, therefore, contain systematic biases that could result in suboptimal policy outcomes.…”

“…It is also conceivable that central banks can be affected by international spillovers from central banks' communication, which may or may not contain forward guidance. Recently, Armelius et al (2018) investigates whether there are any international spillovers from central bank communication sentiment and, granted any exist, the effects thereof on critical macroeconomic and policy variables. 15 To this end, Armelius et al (2018) use structural (sign-restricted) vector autoregressions (VARs) based on data for 23 countries for the period of 2002-2017.…”

“…Armelius et al (2018) use dictionary-based methods outlined inLoughran and McDonald (2011) for extracting content from central bank speeches to construct a measure of 'net positivity', which reflects central bank communication sentiment.…”

Are CBRT’s Monetary Policy Statements Affected by ECB and FED Statements?

“…Kahveci and Odabaş (2016) is the only study that visually analyzes the sentiments in ECB, CBRT and FED statements by comparing their behaviors over pre & post-global economic crisis period. Recently, Armelius et al (2020) suggest that there is a co-movement in the sentiments among the central banks. They analyzed the governor's speeches data set for 22 central banks, not including the CBRT.…”