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The effect of central bank communication on sovereign bond yields: The case of Hungary

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  • Ákos Máté
  • Miklós Sebők
  • Tamás Barczikay

Abstract

In this article we investigate how the public communication of the Hungarian Central Bank’s Monetary Council (MC) affects Hungarian sovereign bond yields. This research ties into the advances made in the financial and political economy literature which rely on extensive textual data and quantitative text analysis tools. While prior research demonstrated that forward guidance, in the form of council meeting minutes or press releases can be used as predictors of rate decisions, we are interested in whether they are able to directly influence asset returns as well. In order to capture the effect of central bank communication, we measure the latent hawkish or dovish sentiment of MC press releases from 2005 to 2019 by applying a sentiment dictionary, a staple in the text mining toolkit. Our results show that central bank forward guidance has an intra-year effect on bond yields. However, the hawkish or dovish sentiment of press releases has no impact on maturities of one year or longer where the policy rate proves to be the most important explanatory variable. Our research also contributes to the literature by applying a specialized dictionary to monetary policy as well as broadening the discussion by analyzing a case from the non-eurozone Central-Eastern region of the European Union.

Suggested Citation

  • Ákos Máté & Miklós Sebők & Tamás Barczikay, 2021. "The effect of central bank communication on sovereign bond yields: The case of Hungary," PLOS ONE, Public Library of Science, vol. 16(2), pages 1-28, February.
    • Handle: RePEc:plo:pone00:0245515
    DOI: 10.1371/journal.pone.0245515
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    References listed on IDEAS

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    1. Jens Hilscher & Yves Nosbusch, 2010. "Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt," Review of Finance, European Finance Association, vol. 14(2), pages 235-262.
    2. Vargas, Gregorio A., 2005. "Macroeconomic Determinants of the Movement of the Yield Curve," MPRA Paper 53117, University Library of Munich, Germany.
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