Reading between the lines - Using text analysis to estimate the loss function of the ECB

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Title: Reading between the lines - Using text analysis to estimate the loss function of the ECB
ISBN: 978-952-323-337-9
Author: Paloviita, Maritta ; Haavio, Markus ; Jalasjoki, Pirkka ; Kilponen, Juha ; Vänni, Ilona
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2020
Series number: 12/2020
Year of publication: 2020
Publication date: 6.7.2020
Published in: Also in VoxEU 28.7.2020
Pages: 41
Subject (yso): keskuspankit; viestintä; rahapolitiikka; inflaatio; tavoitteet; informaatio; tekstianalyysi
Keywords: EKP; inflaatiotavoite; eurojärjestelmä
JEL: E31; E52; E58
Other keywords: central bank communication; ECB; monetary policy; textual analysis; inflation target; real time projections; loss function
Abstract: We measure the tone (sentiment) of the ECB’s Governing Council regarding economic outlook at the time of each monetary policy meeting and use this information together with the Eurosystem/ECB staff macroeconomic projections to directly estimate the Governing Council’s loss function. Our results support earlier, more indirect findings, based on reaction function estimations, that the ECB has been either more averse to inflation above 2% ceiling or that the de facto inflation aim has been considerably below 2%. Our results suggest further that an inflation aim of 2% combined with asymmetry is a plausible specification of the ECB’s preferences.

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