Measuring Communication Quality of Interest Rate Announcements

2023-03-21

The Economists' Voice

AI Summary

This study examines the accessibility and communication quality of interest rate announcements by the Bank of Israel (BOI) over the past decade. Methodologically, it employs text mining techniques—including the Flesch-Kincaid readability score, sentiment analysis, and a dictionary-based uncertainty index—and constructs econometric regression models to enable the first systematic cross-central-bank comparison of policy text readability (BOI, Federal Reserve, European Central Bank). The results show that BOI announcements exhibit significantly higher readability than those of the Fed and ECB; announcement sentiment dynamics track macroeconomic cycles; and textual uncertainty is robustly positively associated with local Israeli financial market volatility. The study contributes a novel methodological framework for evaluating central bank communication effectiveness and provides empirical evidence on how linguistic features of policy texts critically shape market expectations.

Technology Category

• Natural Language Processing: Sentence-level Semantics, Textual Inference, etc.
• Machine Learning: Calibration & Uncertainty Quantification
• Data Mining & Knowledge Management: Conversational Systems for Recommendation & Retrieval

Application Category

• Web Mining and Content Analysis: Robustness and generalizability of Web mining methods
• Search and Retrieval-Augmented AI: Web evaluation methodologies and metrics
• Economics, Online Markets and Human Computation: Data quality aspects of human-annotated datasets

Abstract

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.

Problem

• Measure accessibility of Bank of Israel rate announcements
• Compare readability with Fed and ECB announcements
• Link sentiment and uncertainty to economic trends

Innovation

• Text-mining measures announcement accessibility and quality
• Compares education needed for comprehension across central banks
• Links sentiment and uncertainty to economic indicators