Central bank mandates: How differences can influence the content and tone of central bank communication

• Published in: Journal of international money and finance Vol. 130; p. 102752
• Main Authors: Bohl, Martin T., Kanelis, Dimitrios, Siklos, Pierre L.
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.02.2023
• Subjects: Central Bank Mandates; Expectations; Inflation; Speeches; Structural Topic Model; Unemployment; Expectations; E50; Speeches; Inflation; Structural Topic Model; E52; Central Bank Mandates; E58; Unemployment
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2022.102752

•We analyze the relevance of mandates on speeches given by FED and ECB officials.•Speech content at both central banks display greater similarities before the GFC.•Post-GFC, the FED focus more on unemployment while the ECB on price stability.•Inflation and unemployment expectations significantly drive the tone of speeches.•Comparison of the FED and ECB reveals differences regarding the tone of speeches. Using modern text mining methods, we analyze the influence of central bank mandates on the content and tone of communication via speeches. Relatedly, we also examine empirically how inflation and unemployment expectations affect the tone of speeches relative to past macroeconomic developments. We compare speeches given by senior officials of the Federal Reserve (FED) against ones of the European Central Bank (ECB). We find evidence that the mandate of the central bank does affect speech sentiment. That said, speeches by both central banks display greater similarities before the Great Financial Crisis (GFC), than afterwards. We also find that, especially since the GFC, unemployment expectations drive the tone of FED speeches while inflation expectations influence the tone of ECB speeches.