Analysing Monetary Policy Statements of the Reserve Bank of India

41 Pages Posted: 30 May 2019

See all articles by Aakriti Mathur

Aakriti Mathur

affiliation not provided to SSRN

Rajeswari Sengupta

Indira Gandhi Institute of Development Research (IGIDR)

Date Written: May 7, 2019

Abstract

In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy. Next, we study the influence of various aspects of monetary policy communication on financial markets. Using natural language processing tools, we construct measures of linguistic and structural complexity that capture governor-specific trends in communication. We find that while RBI’s monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years. We also find that there has been a persistent semantic shift in RBI’s monetary policy communication since the adoption of inflation-targeting. Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.

Keywords: Monetary policy, central bank communication, linguistic complexity, financial markets, textual analysis, natural language processing

JEL Classification: E52, E58, G12, G14

Suggested Citation

Mathur, Aakriti and Sengupta, Rajeswari, Analysing Monetary Policy Statements of the Reserve Bank of India (May 7, 2019). Available at SSRN: https://ssrn.com/abstract=3383869 or http://dx.doi.org/10.2139/ssrn.3383869

Aakriti Mathur

affiliation not provided to SSRN

Rajeswari Sengupta (Contact Author)

Indira Gandhi Institute of Development Research (IGIDR) ( email )

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