Central Banks Communication and the State of the Economy

Abstract

In this paper, I use FOMC minutes transcripts from 1995 to 2019 to estimate a topic model that summarizes Central Banks communication as easily interpretable topical themes and quantifies the proportion of news attention allocated to each theme at each point in time. I then use news attention estimates and show that they accurately predict time series of the key economic state variables. Furthermore, I evidence the link between the news sentiment in FOMC announcements in the dynamic of the key economic state variables.