Central Bank sentiment and policy expectations

Abstract: We explore empirically the theoretical prediction that optimism or pessimism have aggregate effects, in the context of monetary policy. First, we quantify the tone conveyed by FOMC policymakers in their statements using computational linguistics. Second, we identify sentiment as the unpredictable component of tone, orthogonal to fundamentals, expectations, monetary shocks and investors' sentiment. Third, we estimate the impact of FOMC sentiment on the term structure of private interest rate expectations using a high-frequency methodology and an ARCH model. Optimistic FOMC sentiment increases policy expectations primarily at the one-year maturity. We also find that sentiment affects inflation and industrial production beyond monetary shocks.

Keywords: Animal spirits; Optimism; Confidence; FOMC; Interest rate expectations; Central Bank Communication; Eurpean Central Bank; Aggregate Effects (search for similar items in EconPapers)
Date: 2017-03-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03457514
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://sciencespo.hal.science/hal-03457514/document (application/pdf)

Related works:
Working Paper: Central bank sentiment and policy expectations (2017)
Working Paper: Central Bank sentiment and policy expectations (2017)
Working Paper: Central Bank Sentiment and Policy Expectations (2016)
Working Paper: Central Bank sentiment and policy expectations (2016)
Working Paper: Central Bank Sentiment and Policy Expectations (2016)
Working Paper: Central Bank Sentiment and Policy Expectations (2016)
Working Paper: Central Bank Sentiment and Policy Expectations (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03457514

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().