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The Consistency of Central Bank Communication: Evidence from the People's Bank of China

【Authors】
WANG Bo, GAO Qingqing
【WorkUnit】
Nankai University, 300350.
【Abstract】

Effective central bank communication is conducive to managing expectations. This paper combines Wordscores and Latent Dirichlet Allocation (LDA) to study the consistency of central bank communication and whether the consistency has thematic asymmetries. Consistency here includes internal consistency and external consistency. External consistency of central bank communication refers to the consistency between the central bank's official statements and media's predicting and interpreting monetary policies. This paper makes a heterogeneous distinction between the official media and financial media, and applies machine learning to online news obtained by crawling with the keywords of “deposit reserve ratio”. The results show that central bank communication and the media are more consistent in the short term. When the monetary policy stance changes, the central bank is more “tactful” while the media is more “direct”. The media pay more attention to the financial market. Before and after the monetary policy is tightened, financial media has more different voices on the policy stance than the official media. Central bank communication and media reports both can help stabilize public expectations and enhance the effectiveness of monetary policy. The forecasts and interpretations of topics within the scope of the central bank's responsibilities are more accurate. Internal consistency includes the consistency of forward-looking communication and actual policy decisions of the Monetary Policy Committee and the consistency of communication effects of Committee members. The results show that forward-looking communication does exist and is asymmetric. Before the monetary policy is tightened, the central bank would communicate more frequently, but with a vague position. The correlation between forward-looking communication and actual policies is higher in the short term. In addition, the governor's forward-looking communication is more frequent than that of external members and more consistent with the policy statement, which indicates that the communication effects of different members are different.


JEL:G14, E52

【KeyWords】
Central Bank Communication, Machine Learning, Wordscores, LDA