Discussion paper

DP17295 Deciphering Monetary Policy Shocks

We decipher monetary policy shocks by directly connecting them to the stance a central bank expresses in its communication about different topics. To measure topic-specific central bank stances, we apply textual analysis techniques to press conference statements of the European Central Bank (ECB). Using three sets of shocks established in the literature, based on either high-frequency market reactions in single
interest rates, the entire term structure, or the joint response in interest rates and stock prices, we find that markets distinctively react to news on the topics rate guidance, economic activity, and financial and monetary conditions. Likewise, responses in sovereign yield spreads and exchange rates can be directly linked to specific topics. Our findings provide validation for price-based monetary policy shocks used in numerous studies in monetary economics and asset pricing. They should also prove useful for the optimal design of policy communication.


Gnan, P, M Schleritzko, M Schmeling and C Wagner (2022), ‘DP17295 Deciphering Monetary Policy Shocks‘, CEPR Discussion Paper No. 17295. CEPR Press, Paris & London. https://cepr.org/publications/dp17295