Communicating financial stability in monetary policy reports: a text-mining experiment in postcommunist countries

Abstract

Purpose: Financial stability has become a focal point for central banks since the global financial crisis. However, the optimal mix between monetary and financial stability policies remains unclear. In this study, the “soft” approach to such policy mix was tested – how often monetary policy (in inflation reports) analyses financial stability issues. This paper aims to discuss the aforementioned objective. Design/methodology/approach: A total of 648 inflation reports published by 11 central banks from post-communist countries in 1998-2019 were reviewed using a text-mining method. Findings: Results show that financial stability topics (mainly cyclical aspects of systemic risk) on average account for only 2%of inflation reports’ content. Although this share has grown somewhat since the global financial crisis (in CZ, HU and PL), it still remains at a low level. Thus, not enough evidence was found on the use of a “soft” policy mix in post-communist countries. Practical implications: Given the strong interactions between price and financial stability, this paper emphasizes the need to increase the attention of monetary policymakers to financial stability issues. Originality/value: The study combines two research areas, i.e. monetary policy and modern text mining techniques on a sample of post-communist countries, something which to the best of the authors’ knowledge has not been sufficiently explored in the literature before.