Abstract
AbstractWe propose a simple method to quantify narratives from textual data, and identify “narrative monetary policy surprises” as the difference in narrative focus in central bank communication accompanying interest rate meetings and economic media coverage prior to those meetings. Identifying narrative surprises, using Norwegian data, provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a significant effect on subsequent media coverage. Narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication, highlighting media's role as information intermediaries.
Highlights
We propose a method to quantify narratives from textual data in a structured manner, and identify what we label “narrative monetary policy surprises” as the change in economic media coverage explained by central bank communication accompanying interest rate meetings
In this paper we propose a fast, simple, and automated method for identifying what we label as “narrative monetary policy surprises” using textual data
Taking the view that central bank communication that reaches the general public might have a different effect on the economy than conventionally measured monetary policy surprises, we identify the narrative surprises as the change in media coverage that can be explained by the surprise in narrative focus in central bank communication accompanying interest rate meetings
Summary
We propose a method to quantify narratives from textual data in a structured manner, and identify what we label “narrative monetary policy surprises” as the change in economic media coverage explained by central bank communication accompanying interest rate meetings. Despite the importance of the media as an information source for households and professionals alike, this transmission mechanism is mostly overlooked in research trying to measure the effect of monetary policy communication To study this transmission mechanism, we propose a simple method to quantify narratives of economic interest from textual data, without having access to already classified training data. The method is fast, simple, and requires minimal subjective judgment regarding the size and timing of narrative surprises
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