Reading between the lines : using text analysis to estimate the loss function of the ECB

Maritta Paloviita - Markus Haavio - Pirkka Jalasjoki - Juha Kilponen - Ilona Vänni

We measure the tone (sentiment) of the ECB's Governing Council regarding economic outlook at the time of each monetary policy meeting and use this information together with the Eurosystem/ECB staff macroeconomic projections to directly estimate the Governing Council's loss function. Our results support earlier, more indirect findings, based on reaction function estimations, that the ECB has been either more averse to inflation above 2% ceiling or that the de facto inflation aim has been considerably below 2%. Our results suggest further that an inflation aim of 2% combined with asymmetry is a plausible specification of the ECB's preferences.

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Year of publication:	6 July 2020
Authors:	Paloviita, Maritta ; Haavio, Markus ; Jalasjoki, Pirkka ; Kilponen, Juha ; Vänni, Ilona
Publisher:	Helsinki : Bank of Finland
Subject:	central bank communication \| ECB \| monetary policy \| textual analysis \| inflation target \| real timeprojections \| loss function \| Geldpolitik \| Monetary policy \| EU-Staaten \| EU countries \| Zentralbank \| Central bank \| Inflationssteuerung \| Inflation targeting \| Politische Kommunikation \| Political communication \| Eurozone \| Euro area