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Measuring Monetary Policy Surprises Using Text Mining: The Case of Korea

Author

Listed:
  • Youngjoon Lee

    (School of Business, Yonsei University)

  • Soohyon Kim

    (Economic Research Institute, Bank of Korea)

  • Ki Young Park

    (School of Economics, Yonsei University)

Abstract

We propose a novel approach to measure monetary policy shocks using sentiment analysis. We quantify the tones of 24,079 news articles around 152 dates of Monetary Policy Board (MPB) meetings of the Bank of Korea (BOK) from March 2005 to November 2017. We then measure monetary policy surprises using the changes of those tones following monetary policy announcements and estimate the impact of monetary policy surprises on asset prices. Our measure of monetary policy surprises better explains changes in long-term rates, while changes in the Bank of Korea's base rate are more closely associated with changes in short-term rates (maturity of one year less). Our results strongly suggest that using a text mining approach to measure monetary policy surprises sheds light on information related to forward guidance and market expectations on future monetary policy.

Suggested Citation

  • Youngjoon Lee & Soohyon Kim & Ki Young Park, 2019. "Measuring Monetary Policy Surprises Using Text Mining: The Case of Korea," Working Papers 2019-11, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1911
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    File URL: http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2019-11.pdf
    File Function: Working Paper, 2019
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    More about this item

    Keywords

    Monetary policy; Text mining; Central banking; Bank of Korea;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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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