Effects of the central bank’s communications in Colombia : a content analysis

Abstract

We carry out a reading analysis that consists of two elements. First, we observe the coherence between monetary policy actions and press releases. In this case, we found that inflation and growth are significant themes in the adoption of the policy measures between September 2004 and March 2016. Moreover, when inflation and economic growth are both raising the monetary actions becomes tighter. Nevertheless, economic activity has always coefficients greater than those of inflation. In second place, the monetary authority goes beyond explanations in the press releases: there are some traces of forward guidance in a number of communications with different degrees of commitment. We also assess whether Colombia’s Central Bank uses its communications as a complementary monetary policy tool and estimate the effectiveness of this strategy. To do so, we use a machine learning technique to unveil the semantic structure of the central bank´s communications. This technique allows us to extract some semantic factors that are used in a structural VAR to identify and measure the impact of these communications on inflation expectations. Our results indicate that Colombia’s Central Bank uses communications as a monetary policy tool and that this strategy influences market inflation expectations.