Measuring Communication Quality of Interest Rate Announcements

TL;DR

This paper uses text-mining to evaluate the clarity and impact of interest rate announcements, revealing differences in accessibility, sentiment alignment with economic changes, and correlations with market volatility.

Contribution

It introduces a novel text-mining approach to assess the communication quality of central bank interest rate announcements across different institutions.

Findings

Israeli announcements are easier to understand than those of Fed and ECB.

Sentiment in announcements correlates with economic fluctuations.

Textual uncertainty relates to domestic financial market volatility.

Abstract

We use text-mining techniques to measure the accessibility and quality of information within the texts of interest rate announcements published by the Bank of Israel over the past decade. We find that comprehension of interest rate announcements published by the Bank of Israel requires fewer years of education than interest rate announcements published by the Federal Reserve and the European Central Bank. In addition, we show that the sentiment within these announcements is aligned with economic fluctuations. We also find that textual uncertainty is correlated with the volatility of the domestic financial market.