Four papers on monetary policy uncertainty and central bank communication

Abstract

This thesis presents four essays on monetary policy uncertainty, expectations, perceptions, and central bank communication.
The first essay develops a Twitter-based index of monetary policy uncertainty for South Africa, addressing the absence of high-frequency measures in emerging markets. Using a shock-restricted structural VAR, the analysis identifies a link between policy uncertainty and stock market volatility, that is, uncertainty shocks increase volatility in the short run, while volatility shocks also feed back into uncertainty. This provides the first high-frequency measure of monetary policy uncertainty that uses social media in South Africa.
The second essay examines the causal relationship between subjective monetary policy uncertainty and subjective stock market volatility using a novel dataset on French households. To address endogeneity concerns, the analysis applies high-dimensional instrumental variable methods, such as IV-Lasso. The results show that higher perceived monetary policy uncertainty leads to significantly higher reported stock market volatility. These findings provide micro-level evidence that uncertainty about monetary policy shapes perceptions of financial market risk, with implications for monetary policy transmission through expectation channels.
The third essay evaluates whether French households form policy rate expectations consistent with the Full Information Rational Expectations benchmark. It documents systematic deviations in the form of perception gaps and forecast errors. These biases are shown to influence household behaviour, particularly saving decisions, where larger perception gaps are associated with a lower probability of being in higher saving bands. This evidence supports theories of bounded rationality and limited attention.
The final essay applies large language models to central bank press releases and speeches to analyse the content and tone of communication. The results show that communication priorities vary across institutions and affect how policy is perceived by markets and households. This essay demonstrates that central bank communication operates as a policy tool in its own right and illustrates the potential of modern computational methods in the study of monetary policy.

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Identifiers

ORCID for Laone Maphane: orcid.org/0000-0002-8339-6658

ORCID for Michael Hatcher: orcid.org/0000-0001-8506-1950

ORCID for Hector Calvo-Pardo: orcid.org/0000-0001-6645-4273

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