Between hawks and doves: measuring Central Bank Communication
نویسندگان
چکیده
Media scrutinise the ECB's communication very attentively to extract information on likely future moves of monetary policy rates, in particular after each press conference following monetary policy meetings. Assessing media's perception requires the translation of words into a quantitative indicator. In this paper, we propose the Hawkish-Dovish (HD) indicator which is computed out of a bulk of above 9,000 media reports on the ECB press conference (i.e. newspaper articles, newswires, etc.) and translates on a numerical scale the degree of “hawkishness” or “dovishness” of the ECB press conference tone perceived by media. We compare two different methods to calculate the indicator: one is based on the semantic orientation, while the other is constructed on a text classification with a Support Vector Machines classification model. We show that the latter method tends to provide more stable and accurate measurements of the perception on a labelled test set. Furthermore, we demonstrate the potential use of this indicator with some applications. We analyse the correlations with a set of interest rates and demonstrate the indicator's ability to anticipate monetary policy moves. Additionally, we use the Latent Dirichlet Allocation (LDA) algorithm to detect the dominant topics in the articles on ECB monetary policy decisions and conclude that the media's focus has shifted from the classic interest rate movements towards the non-standard monetary policy instruments. These findings provide decisive evidence in favour of using an advanced text mining classification model to measure more accurately how media perceive ECB communication.
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