Spread the Word: International Spillovers from Central Bank Communication

Journal of International Money and Finance, Vol. 103, May 2020

Sveriges Riksbank Working Paper Series No. 357

51 Pages Posted: 2 Nov 2018 Last revised: 12 Dec 2020

See all articles by Hanna Armelius

Hanna Armelius

Sveriges Riksbank - Ministry of Finance (Sweden)

Christoph Bertsch

Sveriges Riksbank - Research Division

Isaiah Hull

Sveriges Riksbank - Research Division

Xin Zhang

Sveriges Riksbank - Research Division

Multiple version iconThere are 3 versions of this paper

Date Written: September 1, 2018

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 flow exposure. Second, we find that geographic distance is a robust and economically signi cant 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 influential role in generating such sentiment spillovers, while the ECB is primarily influenced 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 Classification: E52, E58, F42

Suggested Citation

Armelius, Hanna and Bertsch, Christoph and Hull, Isaiah and Zhang, Xin, Spread the Word: International Spillovers from Central Bank Communication (September 1, 2018). Journal of International Money and Finance, Vol. 103, May 2020, Sveriges Riksbank Working Paper Series No. 357, Available at SSRN: https://ssrn.com/abstract=3272741 or http://dx.doi.org/10.2139/ssrn.3272741

Hanna Armelius

Sveriges Riksbank - Ministry of Finance (Sweden) ( email )

Sweden

Christoph Bertsch (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Isaiah Hull

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Xin Zhang

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

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