Central Bank Optimism as a Policy Tool: Evidence from the Bank of England

Tola Adesina

Research output: Working paper

Abstract

We evaluate the tone of optimism in the Bank of England’s Monetary Policy Committee (MPC) communication using computerised textual analysis and then explore the impacts of optimism shocks on key macroeconomic variables. We show that innovations in optimism impact key macroeconomic variables in the same way that a contractionary monetary policy would. We find that increasing optimism shocks in MPC communication leads to rising inflation, falling output, declining stock market returns and a rise in the Pound value. We further find evidence that optimism shocks reduce credit availability, the money supply, retail sales as well as earnings. Finally, government bond yields also tend to rise in response to optimism shocks.
Original languageEnglish
Place of PublicationLondon
PublisherBirkbeck, University of London
VolumeBWPEF
Publication statusPublished - Nov 2017

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