Dundee Discussion Papers in Economics 305: Look who’s Talking: Individual Committee members’ impact on inflation expectations

We explore how speeches from individual members of the Monetary Policy Committee impact on inflation expectations, as proxied by the implied forward rate. Computational linguistics tools are used to quantify the sentiment (tonality) of individual speeches of members. External speakers have calming effects on future expected inflation, whereas the effects are somewhat mixed for the Bank’s Governor and the remaining internal members of the Committee. Members who deliver more speeches make the final selection in the model of the best fit. However, experience at the aggregate level does not unanimously imply more credibility. Speeches previously delivered by a selected few calm inflation expectations. The response to tonality differs when considering pre-crisis, crisis and post-crisis regimes. The findings point out that markets’ are more responsive to the signals emitted by individual speeches in the post-crisis era