Sentiment on Monetary Policy using textual analysis

Mardi | 2019-03-26
Salle des thèses 16h – 17h20

Matthieu PICAULT

Using 25,000 articles from five international newspapers, we construct a measure of media sentiment regarding the European Central Bank policy actions and their consequences, the monetary policy sentiment (MPS) index. We then analyze the effect of ECB governing council members’ communications between 2006 and 2016 on MPS together with standard policy factors. We find that communications of the president during the press conference and communications of governing council members on the economic outlook significantly affect media sentiment. We evaluate the relevance of sentiment on monetary policy by examining how it conditions the response of financial markets’ inflation expectations to inflation surprises. Our analysis suggests that keeping media optimistic can help bringing inflation expectations back to suitable levels in times of desanchoring.