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Shifts in ECB Communication: A Textual Analysis of the Press Conference

Author

Listed:
  • Justyna Klejdysz

    (Ludwig Maximilian University of Munich; Ifo Institute)

  • Robin L. Lumsdaine

    (Kogod School of Business, American University; Econometric Institute, Erasmus University Rotterdam; National Bureau of Economic Research; Center for Financial Stability; Tinbergen Institute)

Abstract
This paper investigates how European Central Bank (ECB) communication, made during the press conference, affects stock market volatility. First, the ECB press conferences are dissected into topics using Latent Dirichlet Allocation (LDA). Then turning points in ECB communication are captured using the estimated topic probabilities. The proposed approach does not rely on subjective interpretation of topical content. The paper finds that (i) the topics reveal communication patterns that match the ECB monetary policy stance, (ii) the content of the ECB press conference is informative for the market, and (iii) market uncertainty increases when the ECB switches to a different communication regime.

Suggested Citation

  • Justyna Klejdysz & Robin L. Lumsdaine, 2023. "Shifts in ECB Communication: A Textual Analysis of the Press Conference," International Journal of Central Banking, International Journal of Central Banking, vol. 19(2), pages 473-542, June.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:2:a:9
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    References listed on IDEAS

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    Cited by:

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    2. Yuqi Nie & Yaxuan Kong & Xiaowen Dong & John M. Mulvey & H. Vincent Poor & Qingsong Wen & Stefan Zohren, 2024. "A Survey of Large Language Models for Financial Applications: Progress, Prospects and Challenges," Papers 2406.11903, arXiv.org.
    3. Neugebauer, Frederik & Russnak, Jan & Zimmermann, Lilli & Camarero Garcia, Sebastian, 2024. "Effects of the ECB’s communication on government bond spreads," Journal of International Money and Finance, Elsevier, vol. 142(C).
    4. de Haan, Jakob & Hoogduin, Lex, 2024. "ECB communication policies: An overview and comparison with the Federal Reserve," Journal of International Money and Finance, Elsevier, vol. 142(C).
    5. Bogner Alexandra & Jerger Jürgen, 2023. "Big data in monetary policy analysis—a critical assessment," Economics and Business Review, Sciendo, vol. 9(2), pages 27-40, April.

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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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