Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 357: Spread the Word: International Spillovers from Central Bank Communication

Hanna Armelius (), Christoph Bertsch (), Isaiah Hull () and Xin Zhang ()
Additional contact information
Hanna Armelius: Payments Department, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Christoph Bertsch: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Isaiah Hull: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Xin Zhang: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: We use text analysis and a novel dataset to measure the sentiment component of central bank communications in 23 countries over the 2002-2017 period. Our analysis yields three key results. First, using directed networks, we show that comovement in sentiment across central banks is not reducible to trade or financial ow exposure. Second, we find that geographic distance is a robust and economically significant determinant of comovement in central bank sentiment, while shared language and colonial ties are economically significant, but less robust. Third, we use structural VARs to show that sentiment shocks generate cross-country spillovers in sentiment, policy rates, and macroeconomic variables. We also find that the Fed plays a uniquely in uential role in generating such sentiment spillovers, while the ECB is primarily in uenced by other central banks. Overall, our results suggest that central bank communication contains systematic biases that could lead to suboptimal policy outcomes.

Keywords: communication; monetary policy; international policy transmission

JEL-codes: E52; E58; F42

60 pages, September 1, 2018

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