Just Words? A Quantitative Analysis of the Communication of the Central Bank of Brazil

We quantify the informational content of statements issued by the interest-rate setting com-mittee of the Central Bank of Brazil (COPOM), building on the methodology developed by Luccaand Trebbi (2011). Using Google search queries, we measure the extent to which each COPOM statement is perceived to be associated with more hawkishor dovish language. This allows us to construct a time-series of the informational content of COPOM statements, which we then use in regressions to explain changes in the term-structure of interest rates around COPOM meetings together with a market-based measure of interest-rate surprises. We find that, during Governor Tombini´s tenure, interest-rate surprises started to be passed through one-to-one (or more) even at long maturities, as markets seem to have bought into the idea that the interest-rate cuts thatbegan in mid-2011 would lead to lower yields in Brazil into the foreseeable future. Most impor-tantly, changes in the informational content of COPOM statements seem to have meaningful effects on yields at short-to-medium maturities. However, this result only holds for the period prior to Tombini's tenure.