WORKS IN PROGRESS:
"Monetary Policy Press Releases: An International Comparison" (Work with Mario Gonzalez)
Central banks that have adopted inflation targeting as their monetary policy framework set their target interest rates at monetary policy meetings and publish their decisions through press releases. These documents also document current policies, economic outlook, and signals about likely future policies. In this paper, we examine the information in these press releases using linguistic methods, specifically the Latent Dirichlet Allocation (LDA) and semi-automated content analysis. We build a custom dictionary for analyzing monetary press releases, which is later used to build the Sentiment Score index a measure that quantifies its latent policy tilt. For most inflation-targeting countries, the index provides information that helps anticipate monetary policy rate movements. Also, we find that activity, expectations, and inflation explain most of the variance of this index. Finally, we find that countries that focus their press releases on expectations move their monetary policy rates sooner than countries that focus on other topics.
PUBLISHED WORK:
"FOMC Minutes Sentiment Surprises and their Impact on Financial Markets"
I develop a semi-automated method that systematically evaluates the information in FOMC meeting documents. This method highlights economic conditions and calculates document sentiment indices that proxy for the FOMC’s interest rate tilt. I compare the sentiment indices of FOMC minutes and their corresponding FOMC statements. Using high-frequency data, I then examine how these sentiment indices are associated with the fed funds futures contracts, broad equity, and real estate investment trust indices, and exchange rate valuation of several major currencies against the U.S. Dollar. I find that minutes sentiments have a statistically significant association with the fed funds futures rate and the U.S. dollar’s valuation.
Link to the paper
"Signaling and Financial Market Impact of Chile’s Central Bank Communication: A Content Analysis Approach" (Work with Mario Gonzalez)
Economía (2020)
The Central Bank of Chile determines Chile's monetary policy rate and circulates press releases that explain policy decisions after each of its policy meetings. The information contained in these press releases includes current policies, economic outlook, and signals about likely future policies. In this paper, we examine this type of policy communication by studying the information contained in the releases using Semi-automated Content Analysis. We create a quantitative measure that we call the Sentiment Score index based on this information; we then use this index to evaluate the effectiveness of CBC's communication strategy. In this examination, we analyze if the CBC's communication conveys information regarding the future path of the policy rate. Afterward, we study the impact of the monetary policy statement on financial markets. We find that the CBC's communication provides information that helps anticipate the future stance of monetary policy and that causes significant. short-term impacts on equity markets.
"Forward – Looking Monetary Policy and the Contributions of Public Expectations"
Journal of Accounting and Finance (2020)
Board of Governors staff present macroeconomic forecasts to FOMC members shortly before scheduled policy meetings, but only releases these forecasts to the public after five years. To examine if policy rate decisions depend solely on these forecasts, I analyze whether or not information similar to publicly available economic outlook affect policy decisions. Moreover, I use Semi-Automated Content Analysis on FOMC meeting statements to evaluate the type of forecasts reflected in these statements. I find that publicly available inflation projections and contemporaneous staff forecasts of unemployment best portray macroeconomic information that affects policy while FOMC statements are consistent with staff projections.