Central Bank Communication on Financial Stability

Born, Benjamin; Ehrmann, Michael; Fratzscher, Marcel

doi:10.1111/ecoj.12039

Cited by 118 publications

(50 citation statements)

References 56 publications

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“…Our paper differs from Born et al (2014) in two key aspects. First, as noted before, our study develops a new financial-stability-specific dictionary to capture the positive or negative sentiment expressed in communications focused on that topic.…”

Section: Related Literaturementioning

confidence: 79%

“…The closest paper to our study is Born et al (2014), which analyzes the effect of central banks' financial stability communications on stock returns. Born et al (2014) extract the sentiment conveyed by the executive summaries of FSRs and news articles describing interviews and speeches by central bank officials to test whether the tonality of these com-2 Li (2010) also compares several dictionaries using a machine-learning approach.…”

Section: Related Literaturementioning

confidence: 99%

“…Born et al (2014) extract the sentiment conveyed by the executive summaries of FSRs and news articles describing interviews and speeches by central bank officials to test whether the tonality of these com-2 Li (2010) also compares several dictionaries using a machine-learning approach.…”

Section: Related Literaturementioning

confidence: 99%

“…As a result, many central banks received a financial stability mandate or added financial stability to their monetary policy decision making process (Jeanneau, 2014). With this mandate, financial stability communication became an additional tool for central banks (Born et al, 2014). Announcements related to financial stability may reveal information about the condition of the financial system or about the reaction function of central banks to financial developments.…”

Section: Introductionmentioning

confidence: 99%

“…These reports are used to communicate risks and vulnerabilities in the financial system and are also meant to increase the transparency of central banks. The Bank of England was, as far as we are aware, the first central bank to have published an FSR in 1996 (see also Born et al, 2014;Osterloo et al, 2011). By 2005, 35 institutions were publishing versions of their FSRs in English.…”

Section: Introductionmentioning

confidence: 99%

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Sentiment in Central Bank's Financial Stability Reports

Correa

Garud

Londoño

et al. 2017

internationalfinance

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Using the text of financial stability reports (FSRs) published by central banks, we analyze the relation between the financial cycle and the sentiment conveyed in these official communications. To do so, we construct a dictionary tailored specifically to a financial stability context, which assigns positive and negative connotations based on the sentiment conveyed by words in FSRs. With this dictionary, we construct a financial stability sentiment (FSS) index. Using a panel of 35 countries for the sample period between 2005 and 2015, we find that central banks' FSS indexes are mostly driven by developments in the banking sector and by the indicators that convey information about the health of this sector. We also find that the sentiment captured by the FSS index translates into changes in financial cycle indicators related to credit, asset prices, and systemic risk. Finally, our results show that central banks' sentiment deteriorates just prior to the start of banking crises. JEL Classification: G15, G28.

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Section: Related Literaturementioning

confidence: 79%

Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Sentiment in Central Bank's Financial Stability Reports

Correa

Garud

Londoño

et al. 2017

internationalfinance

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The ECB press conference statement: deriving a new sentiment indicator for the euro area

Kanelis,

Siklos

2024

Int. J Fin Econ

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We analyse the introductory statements of the ECB president and derive new sentiment indicators for the euro area based on a novel approach. To evaluate sentiment, we utilize a Large Language Model, namely FinBERT, which classifies the verbal sentiment of economics and finance‐related textual data. We find that the ECB's conveyed sentiment about monetary policy, which is influenced by the economic outlook and the state of the euro area macroeconomy as expressed in speeches, plays a significant role in shaping the content of press conferences following a governing council decision. In contrast, speech sentiment regarding financial stability does not significantly influence introductory statements.

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Does financial stability communication affect financial asset prices? Evidence from the Bank of England's communication experiment

Jbir

2024

Int. J Fin Econ

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This paper examines the Bank of England's (BoE) communication on financial stability between 2013 and 2018. We apply an event study to determine the communication effect on financial institutions' stock market returns. We find that the BoE's announcements generate negative average abnormal returns for non‐banking and banking systems, including the Global Systemically Important Banks. The same effect emerges when we consider the communication's tone. Furthermore, we construct a macroprudential decision communication index and show that the negative impact of the BoE's tone is significant only when the decision communication index value is above average. Moreover, we find evidence that negative abnormal returns tend to appear after the Brexit referendum, while we find positive abnormal returns before that date. Besides, we do not identify a noticeable effect related to communication practices.

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Central Bank Communication on Financial Stability

Abstract: 4Non-technical summary 5

Cited by 118 publications

References 56 publications

Sentiment in Central Bank's Financial Stability Reports

Sentiment in Central Bank's Financial Stability Reports

The ECB press conference statement: deriving a new sentiment indicator for the euro area

Does financial stability communication affect financial asset prices? Evidence from the Bank of England's communication experiment

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