Analysis of the impact of central bank communications on money market indicators

Abstract

Press releases on monetary policy play an important role in the communication policy of the central bank. These press releases explain key rate decisions and provide signals about the future direction of the central bank’s monetary policy. Information signals can influence the expectations of financial market participants and increase the predictability and effectiveness of monetary policy. There are not enough research papers dedicated to the text analysis of the Bank of Russia press releases and the assessment of information signals. Hence, this article examines the impact of information signals about monetary policy on the money market rate, term and credit spreads. First, we estimate latent Dirichlet allocation to determine the topics of information signals. Second, we use sentiment analysis to construct signals about easing or tightening of the monetary policy. Third, the impact of signals about the future monetary policy on the money market indicators is assessed using the exponential GARCH model. Empirical research has shown that signals of future monetary policy easing are associated with lower money market rates and term spreads, and an increase in the credit spread. The result proved to be resistant to various ways of vectorizing the text of press releases. The article was prepared as a part of the state assignment research of Russian Presidential Academy of National Economy and Public Administration.