Words are not all created equal: a new measure of the ECB communication

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We develop a field-specific dictionary to measure the stance of the European Central Bank monetary policy (dovish, neutral, hawkish) and the state of the Eurozone economy (positive, neutral, negative) through the content of ECB press conferences. In contrast with traditional textual analysis, we propose a novel approach using term-weighting and contiguous sequence of words (n-grams) to better capture the subtlety of central bank communication. We find that quantifying ECB communication using our field-specific weighted lexicon do help predicting future ECB monetary decision and European stock market volatility. Our indicators significantly outperform a textual classification based on the Loughran-McDonald or Apel-Blix-Grimaldi dictionaries and a media-based measure of economic policy uncertainty.

Author(s):

Matthieu Picault    
IESEG School of Management
France

Thomas Renault    
Université Paris I - Sorbonne & IESEG
France