Paper Title
Do Central Bank Sentiments Predict Liquidity within the European Monetary Union? A Computational Linguistics Approach
A specialized lexicon is used to extract sentiments from ECB statements over the period 2006-2016. ECB sentiments on i) monetary policy and ii) economic outlook are related to financial market liquidity. Positive ECB sentiments on economic outlook produce a statistically significant effect on currency, equity and bond (CEB) liquidity but the effects are transient and reversible. “Hawkish” ECB sentiments on monetary policy can also affect CEB liquidity but actual changes in the policy rate are more consequential. Actions do ‘speak’ louder than words for money market (MM) liquidity. ECB sentiments, especially those on economic outlook, are a predictor of liquidity.