Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB
Abstract
:1. Introduction
2. Literature Review
3. A Snapshot to the ECB and the Fed
4. Methodology
4.1. Measuring the Communication Tones
4.1.1. LM Lexicon
4.1.2. FinBERT
4.2. Wavelet Coherence
5. Empirical Findings
5.1. Wavelet Coherence for Speeches
5.2. Robustness Check: Wavelet Coherence for Extended Speeches
6. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Appendix A. Long-Run Trends of the Lexicons
1 | One relatively recent example to highlight the importance of the communication of the central banks is the public statements made several times by the ECB president, Jean-Claude Trichet, disregarding the impact of the US monetary policies on the Eurozone (Willard & Vidaillet, 2009). |
2 | While examining the relationship between the two CBs, regression models will neglect the dynamic structure of the relationship between two CBs, which are even dynamic as themselves. For example, Swanson (2023) mentions the change in the importance of the Fed speeches over time. Regarding the interdependence of the two CBs, Vukovic et al. (2021) apply wavelet coherence using money market returns with different maturities using interbank rates and bond returns for the period 2004–2018 taking into account the frequency domain of the relationship |
3 | There are some other communication tools, however they are discarded from the analysis due to their low frequency. |
4 | https://www.federalreserve.gov/newsevents/testimony.htm, Retrieved by 19 December 2024. |
5 | Szyszko et al. (2022) mention about the differences between the tone and the sentiment in the monetary policy literature such that sentiments are the unpredictable component of the tone. |
6 | NLP is a subfield of artificial intelligence to analyze human language and text pre-processing part of NLP helps clean and prepare the text. ML is the learning process of the machines from the patterns in the data. DL is a subset and more comprehensive version of ML that mimics the learning process of the brain and helps process unstructured data such as texts, images, etc. |
7 | https://www.federalreserve.gov/newsevents/speech/bowman20250131a.htm, Accessed by 22 September 2023. |
8 | We use the Matlab package of Grinsted et al. (2004). |
9 | We may assume period 1 as a threshold to divide short run (values lower than 1) and long run (values higher than 1) findings. |
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Fed | ECB | |||||
---|---|---|---|---|---|---|
Speech | Conf | Testimony | Speech | Conf | Hearing | |
FinBERT | ||||||
Mean | −0.032 | −0.043 | 0.015 | 0.046 | 0.009 | 0.081 |
Std | 0.048 | 0.028 | 0.074 | 0.052 | 0.053 | 0.080 |
Min | −0.160 | −0.117 | −0.179 | −0.179 | −0.123 | −0.066 |
Max | 0.149 | 0.004 | 0.500 | 0.242 | 0.131 | 0.284 |
LM | ||||||
Mean | −0.330 | −0.397 | −0.330 | −0.163 | −0.426 | −0.151 |
Std | 0.166 | 0.095 | 0.219 | 0.188 | 0.120 | 0.187 |
Min | −0.742 | −0.617 | −0.838 | −0.597 | −0.686 | −0.590 |
Max | 0.313 | −0.122 | 0.375 | 0.398 | 0.081 | 0.318 |
Obs | 285 | 70 | 187 | 285 | 242 | 99 |
Date start | 01:2000 | 04:2011 | 01:2000 | 01:2000 | 03:2000 | 01:2000 |
Date end | 09:2023 | 09:2023 | 09:2023 | 09:2023 | 09:2023 | 09:2023 |
No. of docs | 1470 | 71 | 371 | 2244 | 256 | 102 |
Sentence | |||
---|---|---|---|
“The average pace of job gains over the past year has slowed somewhat and the labor force participation rate has also improved over the same time frame, a sign that labor market supply and demand may be coming into better balance”. | 0.999 | 0 | 0 |
“Despite this tightening of bank lending standards, we have not seen signs of a sharp contraction in credit that would significantly slow economic activity”. | 0 | 0.742 | 0.258 |
“This, along with my own expectation that progress on inflation is likely to be slow given the current level of monetary policy restraint, suggests that further policy tightening will be needed to bring inflation down in a sustainable and timely manner”. | 0 | 0.998 | 0.002 |
Sentiment intensity | 0.33 | 0.58 | 0.09 |
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Deniz, P.; Stengos, T. Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB. J. Risk Financial Manag. 2025, 18, 191. https://doi.org/10.3390/jrfm18040191
Deniz P, Stengos T. Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB. Journal of Risk and Financial Management. 2025; 18(4):191. https://doi.org/10.3390/jrfm18040191
Chicago/Turabian StyleDeniz, Pinar, and Thanasis Stengos. 2025. "Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB" Journal of Risk and Financial Management 18, no. 4: 191. https://doi.org/10.3390/jrfm18040191
APA StyleDeniz, P., & Stengos, T. (2025). Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB. Journal of Risk and Financial Management, 18(4), 191. https://doi.org/10.3390/jrfm18040191