How Central Bank Independence Shapes Monetary Policy Communication: A Large Language Model Application

Lauren Caroline Leek and Simeon Bischl
Additional contact information
Lauren Caroline Leek: European University Institute

No yrhka, SocArXiv from Center for Open Science

Abstract: Although central bank communication is a core monetary policy and accountability tool for central banks, little is known about what shapes it. This paper develops and tests a theory regarding a previously unconsidered variable: central bank independence (CBI). We argue that increases in CBI alter the pressures a central bank faces, compelling them to address these pressures to maintain their reputation. We fine-tune and validate a Large Language Model (Google's Gemini) to develop novel textual indices of policy pressures regarding monetary policy communication of central banks in speeches of 100 central banks from 1997 to 2023. Employing a staggered difference-in-differences and an instrumental variable approach, we find robust evidence that an increase in independence decreases monetary pressures and increases financial pressures discussed in monetary policy communication. These results are not, as generally is assumed, confounded by general changes in communication over time or singular events, in particular, the Global Financial Crisis.

Date: 2024-11-25
New Economics Papers: this item is included in nep-ain, nep-big, nep-cba and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://osf.io/download/67439e7c37e51386defb4feb/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:yrhka

DOI: 10.31219/osf.io/yrhka

Access Statistics for this paper

More papers in SocArXiv from Center for Open Science
Bibliographic data for series maintained by OSF ().