Media Sentiment on Monetary Policy: Determinants and Relevance for Inflation Expectations
41 Pages Posted: 23 Oct 2020 Last revised: 7 Mar 2022
Date Written: September 4, 2020
Abstract
We construct a new indicator to capture media sentiment about the European Central Bank monetary policy and its relevant environment by analyzing 25,000 articles from five major international newspapers. Using named entity recognition and part-of-speech tagging, we propose a methodology to dissociate the dissemination of the central bank's official communications from the media comments. The resulting -daily- index correlates with some -monthly- standard measures of economic sentiment but reveals idiosyncratic information on monetary policy. Analyzing the determinants of our index, we find that both press conference and inter-meeting communications of the president significantly affect media sentiment. We then show that, controlling for a large range of factors, daily changes in media sentiment have predictive power on financial markets’ inflation expectations.
Keywords: central bank communication, European Central Bank, textual analysis, inflation expectations, media sentiment
JEL Classification: E43, E52, G12
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