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D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

Banca d’ItaliaRome, October, 21st, 2019

Discussion by Ricardo Gimeno

THE SET UP

2D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

13:00

14:00

15:00

16:00

13:45

14:30-15:00

15:00-15:30

Press Release:

Monetary Policy Decissions

Introductory Statement

Questions & Answers

US Stock Market Openning

-0,67

-0,65

-0,63

-0,61

-0,59

-0,57

-0,55

-0,53

-0,51

12:00 13:00 14:00 15:00 16:00 17:00

RENTABILIDAD DE LA DEUDA PÚBLICA A 10 AÑOS

ALEMANIA 10Y EEUU 10Y (derecha)

Anuncio de la decisión% %14:15 Publ icación detalle medidas

1,112

1,116

1,120

1,124

1,128

0,900

0,905

0,910

0,915

0,920

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TIPO DE CAMBIO

EURO/DÓLAR EURO/LIBRA (derecha)

Anuncio de la decisión 14:15Publ icación detalle

medidas

96

97

98

99

100

101

102

103

12:00 13:00 14:00 15:00 16:00 17:00

ÍNDICES BURSÁTILES (100 = 12:00h)

IBEX 35 EURO STOXX 50EURO STOXX BANCOS ITALIA BANCOSIGBM BANCOS

14:15Anuncio de la decisiónPubl icación detalle

medidas

THE SET UP

3D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

13:00 14:00 15:00 16:00

13:45 -14:30 Impactof the MonetaryPolicy Decisions

14:30 -15:00 Impact of theIntroductory Statement

(forward guidance)

15:00 -15:30 Impact of the Q&A(FG consistency)

Δ𝑃𝑃13:4514:30

Δ𝑃𝑃14:3015:00 Δ𝑃𝑃15:00

15:30

THE SET UP

4D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Measuring Sentiment

5D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

Supervised classifications:

1. AFINN Measure

2. Loughran Measure

3. Hawk-Dove Measure

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macroecono

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onre

cess

economy

downsid

economist

gdp

econo

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oy

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dow

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uncertainties

debt

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dow nsidegeopolit

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hous

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def icits

negativ

len

bank

banks

finan

cial

tltro

loans

tltros

refinancing

financingbanking

profitability

loan

finances

profits

tltro’s

funding

lend

finance

centralbanks

cent

ralb

ank

purchaasset

program

depo

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forward

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tltros limits

limit

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depositors

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deflation

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Measuring Sentiment

6D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

Hawk-Dove Measure:

Dovish Terms: Hawkish Terms:• Accommodation• Recession• Devastation• Unemployment• Downturn

• Business• Economy• Equity• Housing• Inflationary• Manufacturing• Prices• Securities• Toll• Businesses• Employment• Expansion• Income• Investment• Outlook• Production• Slack

• Wage• Demand• Energy• Financial• Indicators• Investments• Output• Recovery• Spending• Wages• Economic• Equities• Growth• Inflation• Labour• Price• Resource• Target

Baseline results

7D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

What is the correlation between:

1. AFINN Sentiment Measure2. Loughran Sentiment Measure

4. Hawk-Dove IndexWhat is the correlation between the topical tone:

1. Economic Analysis

3. Loughran Uncertainty Measure

2. Structural Reforms3. Monetary Policy Information4. Monetary Analysis5. Adminstrative6. Financial Markets

7. Price Information8. Global Macro9. Price Stability10. Fiscal Consolidation11. APP12. Monetary Policy Information 2

Baseline Results

8D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS

Sentiment Measures tend to be quite volatile

1. Use different experts with differentjudgements on the hawkish/dovish and positive/negative nature of words. Use Cronbach alpha to measure the Validity

2. Construct confidence intervals bybootstrapping the words used.

3. Filter the signal/noise in the sentimentseries. Select those words with thehigher degree of signal to noise ratio

4. Go unsupervised, by selecting thewords that are better aligned withthemarket reactions.

Ricardo Gimeno (ricardo.gimeno@bde.es)

Thank you for your attention!

D.G. OPERATIONS, MARKETS AND PAYMENT SYSTEMS