Sentiment in Central Banks' Financial Stability Reports
50 Pages Posted: 28 Dec 2017
Date Written: December 21, 2017
We use the text of financial stability reports (FSRs) published by central banks to analyze the relation between the financial cycle and the sentiment conveyed in these official communications. To do so, we construct a dictionary tailored specifically to a financial stability context, which classifies words into positive and negative based on the sentiment conveyed by these words in FSRs. With this dictionary, we construct financial stability sentiment (FSS) indexes for 35 countries between 2005 and 2015. We find that central banks' financial stability communications are mostly driven by developments in the banking sector. Moreover, the sentiment captured by the FSS index explains future movements in financial cycle indicators related to credit, asset prices, and systemic risk. Finally, our results show that the sentiment in central banks' communications deteriorates just prior to the start of banking crises.
Keywords: Financial stability, Central bank communications, Text analysis, Dictionary, Sentiment index
JEL Classification: G15, G28
Suggested Citation: Suggested Citation