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Douglas Araujo
- 1 April 2025
- WORKING PAPER SERIES - No. 3047Details
- Abstract
- Word embeddings are vectors of real numbers associated with words, designed to capture semantic and syntactic similarity between the words in a corpus of text. We estimate the word embeddings of the European Central Bank’s introductory statements at monetary policy press conferences by using a simple natural language processing model (Word2Vec), only based on the information and model parameters available as of each press conference. We show that a measure based on such embeddings contributes to improve core inflation forecasts multiple quarters ahead. Other common textual analysis techniques, such as dictionary-based metrics or sentiment metrics do not obtain the same results. The information contained in the embeddings remains valuable for out-of-sample forecasting even after controlling for the central bank inflation forecasts, which are an important input for the introductory statements.
- JEL Code
- E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies