Bank Communication Research Articles

Central bank communication in unconventional times: Some evidence from a textual analysis of the National Bank of Poland communication during the COVID-crisis

The article analyses the communication of the National Bank of Poland (NBP) one year after the announcement of the crisis response package adopted after the outbreak of the COVID pandemic. It presents the perspective of a central bank that first entered unconventional monetary ground during the COVID-crisis. The analysis aims to answer the question of what message about monetary policy objectives may have been conveyed in communication with regard to possible interpretations of the response actions by economic agents. Misinterpretations of policy actions at the time, fuelled by the increased attention to inflation, could later contribute to higher inflation persistence. The article presents findings based on the innovative use of MAXQDA Pro 2022 solutions for textual analysis of central bank’s communication. It points to three inconsistencies in the NBP’s communication that could potentially lead to misinterpretation of the NBP’s policy actions in response to the crisis and thus affect the formation of expectations.

Talking in a language that everyone can understand? Clarity of speeches by the ECB Executive Board

We use data on speeches held by members of the European Central Bank's (ECB) Executive Board to analyze whether the clarity of central bank communication has increased over time. Employing readability measures as proxy variables, we find that the clarity of information provision is trending upward since the inception of the ECB. The increase is gradual rather than being induced by changes in the board composition or major macroeconomic events. We also show that clarity is higher for speeches aimed at general audiences and for speeches by female speakers. Moreover, we find that higher clarity of speeches is associated with more optimistic media sentiment about the ECB and a stronger relationship between speech and media sentiment.

Central bank communication: Inflation target transparency with fiscal policy

AbstractThis article examines the impact of opacity in announcing the central bank's inflation target on macroeconomic volatility and welfare, considering the interaction between an independent central bank and a fiscal authority. Our findings suggest that a key factor influencing the effects of central bank transparency is the relative importance placed by the central bank, compared to the government, on output stabilization versus inflation stabilization. Specifically, when output stabilization is relatively more important for the central bank than for the government, full opacity may benefit the central bank, but not necessarily society as a whole.

Customers Perception on Banking Communication in Development Banks of Kathmandu Valley: Evidence from Structural Equation Modelling

Background: Effective communication is vital in banking, influencing customer satisfaction and the overall success of banking operations. While global research on banking communication is extensive, studies specific to Nepalese development banks are limited. Objective: The study aims to analyze how customers perceive the communication strategies employed by development banks, identifying challenges and providing recommendations for improvement. Method: An explanatory research design was used, with data collected from 281 customers using KOBO Toolbox and structured questionnaires. The data was analyzed using SPSS, AMOS, and Excel, with Structural Equation Modeling (SEM) applied for inferential analysis. Result: The study found that both formal and informal communication methods are widely used by development banks. However, major challenges include a lack of proper knowledge in digital communication, inadequate communication technology, and ineffective communication strategies. Despite these challenges, good communication was identified as a key factor in customer satisfaction and loyalty. Conclusion: The study concludes that while banking communication is generally effective, there are significant areas for improvement, particularly in digital communication and strategy formulation. Banks are recommended to adopt user-friendly communication technologies, train employees in communication skills, and conduct educational campaigns for customers. By addressing these issues, banks can enhance customer satisfaction and build stronger relationships with their clientele. Paper Types: Research Paper Key words: Banking Communication, Customer's Perception, Loyalty, Trust, Structural Equation Modeling (SEM), Development Bank, Kathmandu Valley. JEL classification: D83, G21, O14, C39, G53

Customers’ Perception on Banking Communication

This study explored customers’ perceptions of banking communication in “A” grade banks within Surkhet Valley, Nepal, aiming to fill a critical gap in understanding the dynamics of communication within the banking sector. Drawing upon existing literature and theoretical frameworks, the research investigated factors influencing customer awareness and satisfaction regarding banking communication. Through a quantitative approach involving 405 respondents, the study employed ordered logistic regression analysis to discern significant relationships between various demographic and experiential factors and banking communication awareness levels. Findings revealed that age, participation in common schemes, hassle with account updates, involvement with ASWA (Automated Settlement of Withdrawals and Advances), gender and work experience significantly impacted banking communication awareness levels among customers. Age, common scheme participation, hassle with account updates and ASWA involvement positively influence awareness and gender and work experience exhibited negative associations. These results underscored the importance of tailored communication strategies targeting diverse demographic groups to enhance overall banking communication effectiveness. The implications extend to managerial practices, suggesting the adoption of transparent and accessible communication channels, and policy recommendations aimed at promoting regulatory frameworks conducive to improved customer engagement. Furthermore, the study highlighted avenues for future research, including the exploration of cultural and regional influences on banking communication perceptions. By addressing the identified factors, banks can strengthen customer relationships, foster loyalty and enhance service quality, thereby contributing to the sustainable growth of the banking sector in Surkhet Valley.

Central bank communication and stabilization policies under firms’ motivated beliefs

Central bank communication and stabilization policies under firms’ motivated beliefs

Impact of Monetary Policy on Stock Market Volatility

Purpose: The general objective of the study was to analyze the impact of monetary policy on stock market volatility. Methodology: The study adopted a desktop research methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library. Findings: The findings reveal that there exists a contextual and methodological gap relating to the impact of monetary policy on stock market volatility. Preliminary empirical review revealed that monetary policy exerts significant influence on stock market volatility through various channels such as interest rate adjustments, quantitative easing, and forward guidance. It highlighted that the timing and clarity of policy announcements play a crucial role in shaping market reactions, with unexpected shifts often leading to heightened volatility. Global interconnectedness amplified these effects, underscoring the need for coordinated policy responses. Behavioral factors also contributed, as investor sentiment and market psychology could magnify volatility independently of economic fundamentals. Understanding these dynamics is crucial for effective policy design and market stability amidst evolving financial landscapes. Unique Contribution to Theory, Practice and Policy: Efficient Market Hypothesis (EMH, Rational Expectations Theory and Keynesian Economics may be used to anchor future studies on monetary policy on stock market volatility. Recommendations from the study included integrating behavioral finance models into economic frameworks to enhance predictive accuracy. It advocated for clearer and more consistent central bank communications to align market expectations with policy actions, reducing uncertainty-driven volatility. Collaborative efforts among central banks were emphasized to manage international spillovers and enhance global financial stability. Adaptive policy frameworks were proposed to respond flexibly to changing market conditions while promoting regulatory measures to safeguard against excessive risk-taking. These recommendations aimed to foster a stable financial environment supportive of sustainable economic growth and market confidence.

One money, one voice? Evaluating ideological positions of euro area central banks

We provide new insights into the effectiveness of central bank communication in the euro area relying on a novel methodology. The time-varying text based ideal point model (TV-TBIP) is used focusing on two crucial topics communicated by central bankers, namely price stability and financial stability. The methodology permits identification of the ideological position of the speaker. We find that the ECB transitions between a high ideal point state reminiscent of interventionist monetary policy and their effects on financial markets and a low ideal point state with emphasis on risks to fragmentation from monetary policy and financial stability policies. The individual euro area central banks tend to mirror the ECB’s position which suggests that some specialization/coordination of responsibilities from the communications activities of euro area national central banks takes place. National central banks’ positions change gradually and usually during crisis periods. In contrast, the ECB’s ideological position is very stable. We also conduct several econometric tests that point to national inflation rates influencing ideological positions. Additionally, we find that professional forecasts are responsive to the position taken of central bankers in their speeches.

The role of central bank communication in the long-term stock-bond correlations: Evidence from China

In this paper, we extend the traditional DCC-MIDAS-X model by incorporating the central bank communication sentiment indicator to examine its effect on the long-term correlations between stock and bond returns. Our results show that positive central bank communication can reduce stock-bond correlation. The effect changes over time depending on the state of the economy, which is significant during upturns but not noticeable during recessions.

Readability and Sentiment Analysis of Central Bank Communication in Central and Eastern Europe

Readability and Sentiment Analysis of Central Bank Communication in Central and Eastern Europe

Is energy firms' investment behavior more sensitive on corporate perception of monetary policy?

Central bank communication has emerged as a non-traditional monetary policy tool capable of mitigating adverse effects, policy uncertainties and stabilizing expectations, thereby affecting corporate investment behaviors. Additionally, monetary authorities among the pioneers are performed in promoting green growth. To shed light on the role of corporate perception of monetary policy in corporate investment and tell the heterogeneous effects between energy and non-energy firms, we employ the Chinese listed firm data during 2011 to 2022 to estimate the relationship. Our empirical findings reveal that corporate firms' investment behaviors are significantly sensitive on corporate perception of monetary policy. In specific, energy-intensive firms are more sensitive on such effects. Moreover, a series of working mechanisms is well explored. The corporate perception of monetary policy helps firms reducing financial risk, alleviating internal financial cost and external bank financing pressure to facilitate energy-intensive firms' investment behaviors. Furthermore, the heterogeneous of non-SOEs and high regulation level highly motivates energy-intensive firms to invest.

Central Bank Communication with the General Public: Promise or False Hope?

Central banks are increasingly reaching out to the general public to motivate and explain their monetary policy actions. One major aim of this outreach is to ensure accountability and create trust; another is to guide inflation expectations. This article surveys a rapidly growing literature on central bank communication with the public, rather than with the financial markets. We first discuss why such communication matters and is more challenging than communicating with expert audiences. Then we turn to methods: How do central banks try to reach the public, and do they succeed? Next, and importantly, we survey the empirical evidence on the extent to which this new outreach affects inflation expectations. On balance, we see some promise in the potential to inform the public better, but many challenges along the way. (JEL D83, D84, E31, E52, E58, G53)

Dictionary-based sentiment analysis of monetary policy communication: on the applicability of lexicons

AbstractIn this study, we discuss central bank communication sentiments assessed using different dictionaries. Policy communication by monetary authorities is considered an essential additional policy tool. Various text-mining techniques could evaluate its sentiment. Dictionary methods are a prominent example here because they offer simplicity and are a starting point for applying more elaborate methods. We decided to test four lexicons: generic, economic and financial and two domain-specific lexicons to conclude on their applicability to assess the sentiments of monetary releases and provide recommendations for their further application. This study surveys four lexicons qualitatively and conducts a few exercises: lexicon content comparison, performance tests for highly positive and negative messages, and statistical tests of dictionary alignment and correlation. The sample covers small open economies implementing inflation targeting. The study concludes that all investigated dictionaries could be used for detecting central bank intentions: they do not return contradictory results. The choice among them for a particular study depends on the study’s setup and goals—as presented in our recommendations

Central Banking Post Crises

The world economy has experienced the largest financial crisis in generations, a global pandemic, and a resurgence in inflation during the first quarter of the 21st century, yielding important insights for central banking. Price stability has important benefits and is the responsibility of a central bank. Achieving price stability in a complex and uncertain environment involves a credible commitment to a nominal anchor with a strong response to inflation and pre-emptive leaning against an overheating economy. Associated challenges imply that central bank communication and transparency are key elements of monetary policy strategies and tactics. Crises have emphasized the role of central banks in promoting financial stability, as financial stability is key to achieving price and economic stability, but this role increases risks to independence. Goals for central banks other than price and economic stability, complemented by financial stability, can make it more difficult for them to stabilize both inflation and economic activity.

Artificial intelligence and central bank communication: the case of the ECB

ABSTRACT We examine whether artificial intelligence (AI) can decipher the European Central Bank’s communication. Employing 1769 inter-meeting verbal communication events of the European Central Bank’s Governing Council members, we construct an AI-based indicator evaluating whether the communication is leaning towards easing, tightening, or maintaining the monetary policy stance. We find that our AI-based indicator replicates reasonably similar indicators based on human expert judgement but at much higher speed and at much lower costs. Using our AI-based indicator and a number of robustness checks, our regression results show that ECB communication matters for future monetary policy even after controlling for financial market expectations and lagged monetary policy decisions.

Secrets of the Temple or Noise of the Agora?

This study sets out to investigate whether the Federal Reserve System is able to efficiently manage the communicative challenge of pandering to the different demands of distinct target audiences—households, firms, banks, and the government. The empirical methodology for this analysis builds on the growing literature analyzing central bank communications to better understand the political and financial implications of monetary policy. We hope to contribute to this field of research by (1) creating a new database of over fifty years of speeches (2) devising a new method for analyzing communications that considers different audiences, and (3) providing empirical evidence for the observation that monetary policy is not neutral, i.e., that communications are positively or negatively biased in favor of some economic groups over others. The results of this analysis show that Fed central bankers communicate differently in response to a speaker’s audience. The political and financial implications suggest that central bank communications may inspire more confidence and higher efficiency in achieving stable long-term interest rates when communications are targeted.

The Predictive Power of Central Bank Communication: Evidence from Mexico

Understanding the impact of central bank communication on the effective transmission and predictability of monetary policy is paramount. In this paper, we analyze the role of Banco de México’s qualitative communication and its potential scope for guidance by implementing Natural Language Processing. Using a Latent Dirichlet allocation model and dictionary-based sentiment analysis, we develop a Hawkish-Dovish Tone index to measure the bias of Banco de México’s monetary policy statements. We then incorporate this index into an ordinal logit regression to further evaluate the predictive power of Banco de México’s talk. Our findings show that a rate hike (cut) and a hawkish (dovish) message are associated with higher odds of observing a restrictive (accommodative) decision at the next monetary policy meeting, and communication captures information not reflected in traditional macroeconomic variables. Yet, when it comes to accurately anticipate future interest rate decisions, the information provided in policy statements has limited predictive value.

Manajemen Risiko Reputasi Perbankan Syariah

Inherent risk is the risk attached to the business activities of Islamic banks, whether quantifiable or not, which has the potential to affect the financial position of the bank. Risk management applications, especially the risk of reputation for Islamic banks, either individually or for banks by way of confirmation by The children's industry does not include the active supervision of the board of commissioners, the board, and the DPS, policies, methods, and determination of limits, as well as methods of identification, measurement, control, and risk management and risk SIM. This risk arose, among others, due to the presence of media reports and rumors about banks having a negative attitude and the existence of an inefficient bank communication strategy. A negative announcement to one Islamic bank would tarnish the good name of another Islamic bank, even though other Islamic banks did not participate in this responsible action. The best reputation risk management method is to implement a predictive or preventive action program and a reputation maintenance program. Risk A good name is an abstract risk and is an intangible asset for the industry. Prosecution of reputational risks should be in a preventive way because the cost of handling this risk is very large and can eventually disrupt and kill the industry.

Team Communication and Employee Performance in Commercial Banks in Tanzania

This study established the influence of team communication on employee performance in commercial banks in Tanzania. The study was anchored on the Katzenback and Smith model. The study adopted a descriptive survey research design and targeted all 39 operational commercial bank headquarters. The unit of observation comprised senior managers, managers, supervisors, and lower-level employees in each of the commercial banks under review thus making a total of 1480 of the targeted respondents. A simple random sampling technique was used to select the respondents; however, the expected sample size was 445 respondents with each senior manager, manager, supervisor, and lower-level employee contributing 30 percent of the total sample size. Both descriptive and inferential statistics were used to analyze the data with the assistance of statistical package for social sciences version 26. The study established that team communication influences employee performance in commercial banks. The study recommended that banks and many other organizations need to put in place mechanisms on how to evaluate -employee-based team performance rather than the rule thumb individual-based performance evaluation. The study has also pointed out strategic areas of importance into which managers in banks can look into the respective banks such as team communication that if well accommodated influence employee performance. In addition to other recommendations, it was proposed that, in light of these findings, work organizations evaluate their high-performance work system policy and activities by the degree to which they contribute directly to the accomplishment of the team’s strategic goals and objectives through the improvement of the employee performance.

Measuring Monetary Policy Shocks in Emerging Economies: Evidence from India

AbstractIn this paper, we provide a template for constructing monetary policy shocks for emerging economies. Our approach synthesizes financial data with a narrative analysis of central bank communication and related media coverage. We create a publicly available time‐series database of policy dates and shocks for the Reserve Bank of India (RBI). Our shocks suggest that financial markets infer information about the future path of policy rate from RBI communication. Bond and stock markets react strongly to these monetary shocks but exhibit heterogeneity across governor regimes. Finally, we use the shocks as external instruments to identify the impact on macro‐economic variables.