Central Bank Communication Affects the Term-Structure of Interest
                  Rates

Chague, Fernando; De-Losso, Rodrigo; Giovannetti, Bruno; Manoel, Paulo

doi:10.5935/0034-7140.20150007

Fernando Chague

Department of Economics, University of São Paulo. Av. Prof. Luciano Gualberto, 908, Cidade Universitária, Butatã, São Paulo. E-mail: fchague@usp.br

Rodrigo De-Losso

Department of Economics, University of São Paulo. E-mail: delosso@usp.br

Bruno Giovannetti

Department of Economics, University of São Paulo. E-mail: bcg@usp.br

Paulo Manoel

UC Berkeley Haas School of Business. E-mail: paulo_manoel@haas.berkeley.edu

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Figure 1
PORTION OF THE VARIANCE CORRELATED WITH EACH FACTOR. This figure graphs, in descending order of magnitude, the portion of the variance correlated with each factor in the PCA based on the matrix of the 18 semantic indexes extracted from the Central Bank minutes.

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Figure 2
TIME-SERIES OF THE FIRST FACTOR. This figure graphs the time-series of the factor based on Central Bank minutes over the period from 2000 to 2012.

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Table 1
MOST FREQUENT WORDS OF EACH SEMANTIC GROUP.This table contains the most frequent (stemmed) words of each semantic group in all Central Bank minutes. Values in brackets represent relative frequencies, measured in basis points.

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Table 2
Loadings on the first factor. This table contains the weights by which each standardized original index should be multiplied to get the first factor. Weights are ordered by their absolute values

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Table 3
Sample time-series correlations. This table contains the contemporaneous correlations between the optimism factor (OF) and four macroeconomic variables over the period from 2000 to 2012, with 129 observations. Macroeconomic variables are: i) SELIC, the monetary policy target rate; ii) INLF, the expected inflation measured by BCB inflation survey for the next twelve months; iii) GDP growth, measured by the inter meeting log-variation of the twelve months accumulated real GDP; iv) FX, the foreign exchange rate, measured by the intermeeting log-variation of the USD/BRL exchange rate; and v) IBOV, stocks returns measured by the intermeeting log-variation Ibovespa stocks index.

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Table 4
Descriptive statistics of the future interest rates. This table contains descriptive statistics for the sample of future rates with constant maturities. The data is from BM&F Bovespa. Data from 03/01/2005 to 28/12/2012, 1967 observations

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Table 5
Regression results for future interest rates. This table contains the estimates of the coefficients of the regression of the future interest rates changes (measured in basis points) against the changes in the optimism factor (OF) over the period from 2005 to 2012, with 68 observations. Changes in the future interest rate are the closing price on the day of disclosure of the minutes less the closing price one day before. Changes of the optimism factor are calculated as the difference of the OF between the contemporaneous minutes and the last minutes. Standard errors are in [square brackets]

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Table 6
Regression results for the future rates volatility. This table contains the estimates of the coefficients of the future interest rates volatility in a time window with five network days against some selected variables. The dependent variable is defined by Vol₅;_t= (5^-1Σ⁴ _{i =0}Δy² _t+i)^1/2, where yt is the future interest rate measured in basis points; “minute” is a dummy with value 1 when the minute is issued and 0 otherwise; “pessimism” is a dummy with value 1 when the variation of the optimism factor is negative in comparison with optimism factor of the last minutes and 0 otherwise. OF is the optimism factor when the minute is issued and 0 otherwise. We use data over the period from 2005 to 2012, with 2001 observations. The dummy “minute” and the variable OF have nonzero values in 68 observations, and the dummy “pessimism” have nonzero values in 33 observations

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Table 7
Regression results for past interest rates. This table contains the estimates of the coefficients of the regression of the lagged (past) future interest rates changes (measured in basis points) against the changes in the optimism factor (OF) over the period from 2005 to 2012, with 68 observations. Changes in the future interest rate are the closing price one day before the disclosure of the minutes less the closing price two days before. Changes of the optimism factor are calculated as the difference of the OF between the contemporaneous minutes and the last minutes. Standard errors are in [square brackets]

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Table 8
First factor loadings (random dictionary). This table contains the weights by which each standardized original index should be multiplied to get the factors (based on the random dictionary) values. Weights are ordered by their absolute values

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Table 9
Regression results for past interest rates. This table contains the estimates of the coefficients of the regression of the future interest rates changes (measured in basis points) against the changes in the optimism factor based on the random dictionary over the period from 2005 to 2012, with 68 observations. Changes in the future interest rate are the closing price on the day of disclosure of the minutes less the closing price one day before. Changes of the optimism factor are calculated as the difference of the OF (based on the random dictionary) between the contemporaneous minutes and the last minutes. Standard errors are in [square brackets]

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Table 10
REGRESSION RESULTS FOR THE FUTURE RATES VOLATILITY. This table contains the estimates of the coefficients of the future interest rates volatility in a time window with five network days against some selected variables. The dependent variable is defined by Vol_5,t = √ 5^-1Σ⁴_{i
=0}Δy² _t+i , where _yt is the future interest rate measured in basis points; “minute” is a dummy with value 1 when the minute is issued and 0 otherwise; “fake pessimism” is a dummy with value 1 when the variation of the fake factor is negative in comparison with fake factor of the last minutes and 0 otherwise. “FakeFactor” is the fake factor when the minute is issued and 0 otherwise. We use data over the period from 2005 to 2012, with 2001 observations

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	Word Ranking (in frequency)
Group	1	2	3
Positive	good (41.2 bps)	respect (30.6 bps)	consid (23.8 bps)
Negative	decreas (31.9 bps)	declin (20.4 bps)	lower (7.2bps)
Pleasure	eas (3.9 bps)	optimist (0.4bps)	resolv (0.2 bps)
Pain	shock (5.7bps)	stress (1.6 bps)	tension (0.7bps)
Feel	vigil (0.6 bps)	option (0.4 bps)	rigid (0.1 bps)
Arousal	determin (3.1 bps)	avers (2.0bps)	anticip (1.9 bps)
Virtue	good (41.2 bps)	capit (19.0bps)	real (14.2bps)
Hostile	sever (4.5bps)	exclus (3.4 bps)	exclud (3.0 bps)
Fail	delinqu (5.4 bps)	default (2.7 bps)	lag (2.6 bps)
Strong	increas (134.9 bps)	industri (45.1 bps)	reach (41.9 bps)
Weak	decreas (31.9 bps)	averag (27.1 bps)	declin (20.4 bps)
Power	mai (29.8 bps)	demand (20.4bps)	employ (13.6 bps)
Active	increas (134.9 bps)	reach (41.9 bps)	oper (32.1 bps)
Passive	growth (36.4bps)	expect (32.2 bps)	decreas (31.9 bps)
Work	adjust (38.9 bps)	oper (32.1 bps)	contribut (16.2 bps)
Try	avail (4.2 bps)	seek (0.2 bps)	redeem (0.1 bps)
Persist	continu (23.1 bps)	maintain (7.1 bps)	persist (6.1 bps)
Complete	reach (41.9 bps)	recoveri (12.8 bps)	establish (5.4bps)

Semantic Group	Weight
Negative	-0.357
Positive	0.352
Strong	0.307
Complet	0.306
Virtue	0.297
Work	0.280
Weak	-0.267
Pleasur	0.251
Persist	0.249
Arousal	0.223
Feel	0.212
Pain	-0.210
Passive	-0.138
Power	-0.112
Try	-0.096
Active	0.088
Fail	-0.074
Hostile	-0.065

	SELIC	INFL	GDP	FX	IBOV	OF
SELIC	1.00
INFL	0.64	1.00
GDP	-0.38	-0.33	1.00
FX	-0.05	-0.06	0.25	1.00
IBOV	0.07	0.04	-0.19	-0.62	1.00
OF	-0.64	-0.51	0.39	-0.16	0.09	1.00

	1 month	3 months	6 months	1 year	2 years
Mean	12.29	12.25	12.24	12.34	12.63
Median	11.62	11.55	11.56	11.88	12.22
Stdev	3.37	3.34	3.24	3.03	2.62
Min	6.97	7.03	6.92	6.87	7.31
Max	19.82	19.88	19.74	19.42	18.78

Coefficient	Dependent variable (estimates)
Coefficient	Δ1-month yield	Δ3-month yield	Δ6-month yield	Δ1-year yield	Δ2-years yield
c	0.09 [0.16]	-0.20 [0.41] -	0.03 [0.76]	-0.39 [1.27]	0.55 [1.50]
ΔOF	0.02 [0.38]	-0.75 [0.82] -	2.75 [1.64]	-4.80 [2.14]	-4.81 [2.18]
R²	0.00	0.01	0.03	0.04	0.03

Dep. variable	Regression
Dep. variable	Vol_5,t	Vol_5,t	log(Vol_5,t)	log(Vol_5,t)
Maturity: 3-month
Constant	3.12 [0.15]	3.12 [0.15]	0.87 [0.04]	0.87 [0.04]
Minute	-0.84 [0.21]	-1.00 [0.26]	-0.03 [0.10]	-0.04 [0.10]
Pessimism		0.33 [0.36]
Optimism Factor			-0.27 [0.10]	-0.28 [0.12]
Pessimism × OF				0.04 [0.14]
R²	0.0030	0.0031	0.0051	0.0051
Maturity: 6-month
Constant	4.51 [0.21]	4.51 [0.21]	1.26 [0.04]	1.26 [0.04]
Minute	-0.54 [0.33]	-1.13 [0.37]	1.15 [0.11]	0.14 [0.11]
Pessimism		1.21 [0.60]
Optimism Factor			-0.30 [0.10]	-0.31 [0.10]
Pessimism × OF				0.07 [0.15]
R²	0.0006	0.0015	0.0026	0.0027
Maturity: 1-year
Constant	6.76 [0.32]	6.76 [0.32]	1.71 [0.03]	1.71 [0.03]
Minute	-0.39 [0.48]	-1.02 [0.53]	0.14 [0.11]	0.14 [0.11]
Pessimism		1.31 [0.87]
Optimism Factor			-0.21 [0.10]	-0.21 [0.10]
Pessimism × OF				0.01 [0.16]
R²	0.0001	0.0006	0.0015	0.0015
Maturity: 2-years
Constant	9.25 [0.43]	9.25 [0.43]	2.03 [0.03]	2.03 [0.03]
Minute	-0.70 [0.62]	-1.41 [0.63]	0.12 [0.08]	0.12 [0.08]
Pessimism		1.46 [1.13]
Optimism Factor			-0.18 [0.08]	-0.18 [0.08]
Pessimism × OF				0.01 [0.15]
R²	0.0003	0.0006	0.0011	0.0011

Coefficient	Dependent variable (estimates)
Coefficient	Δ1-month yield	Δ3-month yield	Δ6-month yield	Δ1-year yield	Δ2-years yield
c	0.53 [0.25]	-0.85 [0.48] -	1.48 [0.60]	-2.17 [0.99]	-2.67 [1.19]
ΔOF	-0.34 [0.29]	-0.76 [0.46] -	1.11 [0.87]	-1.16 [1.13]	-1.80 [1.78]
R²	0.01	0.01	0.01	0.00	0.01

Semantic Group	Weight
Hostile	0.407
Strong	0.352
Try	-0.337
Negativ	0.313
Work	0.272
Arousal	0.266
Complet	0.264
Fail	0.251
Pain	0.194
Feel	0.189
Weak	-0.189
Passive	0.178
Persist	-0.165
Positive	0.151
Virtue	0.130
Active	-0.088
Pleasur	0.071
Power	0.031

Coefficient	Dependent variable (estimates)
Coefficient	Δ1-month yield	Δ3-month yield	Δ6-month yield	Δ1-year yield	Δ2-years yield
c	0.34 [0.59]	-0.82 [1.15]	-1.37 [1.64]	-2.45 [2.01]	-1.41 [2.26]
ΔOF	0.17 [0.37]	-0.43 [0.67]	-1.93 [1.10]	-1.43 [1.56]	-1.36 [1.66]
R²	0.00	0.01	0.01	0.01	0.00

Dep. variable	Regression
Dep. variable	Vol_5,t	Vol_5,t	log(Vol_5,t)	log(Vol_5,t)
Maturity: 3-month
Constant	3.12 [0.15]	3.12 [0.15]	0.87 [0.04]	0.87 [0.04]
Minute	-0.84 [0.21]	-0.81 [0.28]	-0.22 [0.14]	-0.21 [0.14]
Pessimism		-0.05 [0.35]
Optimism Factor			0.01 [0.16]	0.9 [0.20]
Pessimism × OF				-0.12 [0.18]
R²	0.0030	0.0030	0.0033	0.0035
Maturity: 6-month
Constant	4.51 [0.21]	4.51 [0.21]	1.26 [0.04]	1.26 [0.04]
Minute	-0.54 [0.33]	-0.39 [0.48]	-0.10 [0.13]	-0.11 [0.13]
Pessimism		-0.34 [0.60]
Optimism Factor			-0.05 [0.18]	-0.09 [0.23]
Pessimism × OF				0.06 [0.20]
R²	0.0006	0.0007	0.0003	0.0004
Maturity: 1-year
Constant	6.76 [0.32]	6.76 [0.32]	1.71 [0.03]	1.71 [0.03]
Minute	-0.39 [0.48]	-0.29 [0.68]	-0.01 [0.13]	-0.01 [0.13]
Pessimism		-0.21 [0.86]
Optimism Factor			0.00 [0.17]	0.03 [0.23]
Pessimism × OF				-0.04 [0.20]
R²	0.0001	0.0002	0.0000	0.0000
Maturity: 2-years
Constant	9.25 [0.43]	9.25 [0.43]	2.03 [0.03]	2.03 [0.03]
Minute	-0.70 [0.62]	-0.56 [0.87]	0.09 [0.10]	0.09 [0.10]
Pessimism		-0.31 [1.11]
Optimism Factor			0.13 [0.14]	0.17 [0.17]
Pessimism × OF				-0.06 [0.16]
R²	0.0003	0.0003	0.0003	0.0003

Brasil

Brasil

Central Bank Communication Affects the Term-Structure of Interest Rates^* * We would like to thank an anonymous referee, Gabriel Madeira, Ricardo Madeira, Carlos Eduardo Gonçalves, Fernando Botelho and Victor Westrupp for important comments and discussions.

Brasil

Brasil

Central Bank Communication Affects the Term-Structure of Interest Rates* * We would like to thank an anonymous referee, Gabriel Madeira, Ricardo Madeira, Carlos Eduardo Gonçalves, Fernando Botelho and Victor Westrupp for important comments and discussions.

Central Bank Communication Affects the Term-Structure of Interest Rates^* * We would like to thank an anonymous referee, Gabriel Madeira, Ricardo Madeira, Carlos Eduardo Gonçalves, Fernando Botelho and Victor Westrupp for important comments and discussions.