Spread the Word: International Spillovers from Central Bank Communication

Riksbank Research Paper Series No. 180

Sveriges Riksbank Working Paper Series No. 357

51 Pages Posted: 2 Nov 2018

See all articles by Hanna Armelius

Hanna Armelius

Sveriges Riksbank

Christoph Bertsch

Sveriges Riksbank - Research Division

Isaiah Hull

Sveriges Riksbank

Xin Zhang

Sveriges Riksbank - Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: September 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 2018). 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 ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Christoph Bertsch (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Isaiah Hull

Sveriges Riksbank ( email )

S-103 37 Stockholm
Sweden

Xin Zhang

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

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