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The Influence of Central Bank's Projections and Economic Narrative on Professional Forecasters' Expectations: Evidence from Mexico

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  • Antón Sarabia Arturo
  • Bazdresch Santiago
  • Lelo-de-Larrea Alejandra

Abstract

This paper evaluates the influence of central bank's projections and narrative signals provided in the summaries of its Inflation Report on the expectations of professional forecasters for inflation and GDP growth in the case of Mexico. We use the Latent Dirichlet Allocation model, a text-mining technique, to identify narrative signals. We show that both quantitative and qualitative information have an influence on inflation and GDP growth expectations. We also find that narrative signals related to monetary policy, observed inflation, aggregate demand, and inflation and employment projections stand out as the most relevant in accounting for changes in analysts' expectations. If the period of the COVID-19 pandemic is excluded, we still find that forecasters consider both types of information for their inflation expectations.

Suggested Citation

  • Antón Sarabia Arturo & Bazdresch Santiago & Lelo-de-Larrea Alejandra, 2023. "The Influence of Central Bank's Projections and Economic Narrative on Professional Forecasters' Expectations: Evidence from Mexico," Working Papers 2023-21, Banco de México.
    • Handle: RePEc:bdm:wpaper:2023-21
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    References listed on IDEAS

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    More about this item

    Keywords

    Central bank projections; Economic forecasting; Machine learning; Text mining;
    All these keywords.

    JEL classification:

    • 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
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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