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The communication reaction function of the European Central Bank. An analysis using topic modelling

Author

Listed:
  • Luca Alfieri

    (School of Economics and Business Administration, University of Tartu, Tartu, Estonia)

  • Diana Gabrielyan

    (School of Economics and Business Administration, University of Tartu, Tartu, Estonia)

Abstract

Central bank communication plays a crucial role in the conduct of monetary policy, yet the research on central bank communication, while growing, is still scarce. In this paper, we analyze the communication reaction function of the European Central Bank (ECB) through topic-based indices derived from the bank’s speeches. These indices are used as dependent variables in policy and communication reaction function models, as suggested by recent literature. The topics are extracted using Latent Dirichlet Allocation (LDA), a popular text mining algorithm for topic extraction. The ECB has recently reviewed its monetary policy strategy, which led to an increase in studies incorporating the new methods offered by text mining for analyzing the policy reaction function of the bank. We show how indices built through topic modelling can be used to study the communication reaction function of a central bank, and we examine which variables are significant for every topic communicated by the ECB.

Suggested Citation

  • Luca Alfieri & Diana Gabrielyan, 2024. "The communication reaction function of the European Central Bank. An analysis using topic modelling," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 24(1), pages 58-87.
    • Handle: RePEc:bic:journl:v:24:y:2024:i:1:p:58-87
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    File URL: https://www.tandfonline.com/doi/epdf/10.1080/1406099X.2024.2303904
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    More about this item

    Keywords

    Monetary policy; central banking; text mining; communication reaction function;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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