In response to the 2016 referendum on EU Membership and the ensuing uncertainty as to the eventual consequences of Brexit, the Bank of England (BoE) adopted various methods of influencing market rates, including conventional, unconventional monetary policy measures and communications on forward guidance. To investigate the effectiveness of BoE’s communication, we first decompose long-dated yields into a risk neutral and term premium component. Text-based analysis of Monetary Policy Committee minutes is then used to measure the stance of policy, attitudes to QE and Brexit. We show that the Bank’s communication strategy acted to complement the stance of monetary policy, which had responded by lowering Bank rate and expanding QE, and acted to lower the term premium that might otherwise have risen in response to Brexit uncertainty.
Authors
Jagjit Chadha, Corrado Macchiarelli, Satyam Goel, Arno Hantzsche, Sathya Mellina
- Format
- Paper
- Frequency
- regular
- ISBN
- 9798400284649
- ISSN
- 1018-5941
- Pages
- 43
- Published in
- United States of America
- Series
- Working Paper No. 2024/160
- StockNumber
- WPIEA2024160
Table of Contents
- Jagjit S. Chadha Corrado Macchiarelli Satyam Goel Arno Hantzsche Sathya Mellina 1
- Prepared by Jagjit S. Chadha Corrado Macchiarelli Satyam Goel Arno Hantzsche Sathya Mellina 3
- Contents 4
- Glossary 6
- Executive Summary 7
- Introduction 8
- Related literature 12
- A model of debt supply and term premium 14
- Applying text mining to Bank of England minutes 18
- Determinants of the yield curve 24
- Empirical model and results 26
- Policy implications 31
- Conclusions 32
- Annex I. Long-term bond yield decomposition 34
- Annex II. The LDA algorithm 36
- Annex III. Uncertainty Indices 39
- References 40
