Measuring Monetary Policy Surprises Using Text Mining: The Case of Korea

38 Pages Posted: 6 Mar 2019 Last revised: 23 Mar 2019

See all articles by Young Joon Lee

Young Joon Lee

Stanford University - Precourt Institute for Energy; Yonsei University - Yonsei Business Research Institute

Soohyon Kim

The Bank of Korea

Ki Young Park

Yonsei University

Date Written: March 21, 2019

Abstract

We propose a novel approach to measure monetary policy shocks using sentiment analy-\sis, which is relatively free from specification errors compared to VAR-identified shocks and allows time for a wider circle of market participants to digest information com-pared to shocks identified through intraday Fed futures data. We quantify the tones of news articles around 152 dates of Monetary Policy Board (MPB) meetings of the Bank of Korea (BOK) from 2005 to 2017 and then measure monetary policy surprises us-ing the changes of those tones following monetary policy announcements. We estimate its impact on asset prices and find that it better explains changes in long-term rates, while changes in the Bank of Korea’s base rate and VAR-identified monetary shocks are more closely associated with changes in short-term rates. Our result strongly suggests that a text mining approach to measure monetary policy surprises can be an useful complement to extract market expectations on future monetary policy.

Keywords: Monetary policy; Text mining; Central banking; Bank of Korea; Machine learning

JEL Classification: E43, E52, E58

Suggested Citation

Lee, Young Joon and Kim, Soohyon and Park, Ki Young, Measuring Monetary Policy Surprises Using Text Mining: The Case of Korea (March 21, 2019). Bank of Korea WP 2019-11. Available at SSRN: https://ssrn.com/abstract=3347429 or http://dx.doi.org/10.2139/ssrn.3347429

Young Joon Lee (Contact Author)

Stanford University - Precourt Institute for Energy ( email )

473 Via Ortega, Suite 324
Stanford University
Stanford, CA 94305
United States

HOME PAGE: http://energy.stanford.edu

Yonsei University - Yonsei Business Research Institute ( email )

50 Yonsei-ro, Seodaemun-gu
Yonsei University
Seoul, 03722
Korea, Republic of (South Korea)

Soohyon Kim

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Ki Young Park

Yonsei University ( email )

Yonsei University
Seoul
Korea, Republic of (South Korea)

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