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Economics

You are here Postgraduate > Diploma in Applied Economics and Big Data > Course Structure > Text Analysis for Macroeconomic Policy

Text Analysis for Macroeconomic Policy

Module Code: ECP77463

  • ECTS Credit: 5
  • Mandatory/Optional: Optional
  • Semester/Term Taught: Michaelmas Term
  • Module Coordinator: Professor Davide Romelli

Aims of Module

Which is the primary objective of central banks? How do central banks implement and communicate their monetary policies? The learning aims for this module are to empower students with a deep understanding of the evolution of macroeconomic policy and to master methods and techniques specifically tailored for analysing central bank communication. Students will be trained on how to extract, process, and critically assess text data from central bank releases, speeches, and reports. This knowledge will provide unique insights into the relationship between central bank communication and financial markets, macroeconomic sentiment, and policy outcomes. The module seeks to equip students with the ability to integrate these methods into their economic research toolbox, enhancing their capacity to leverage unstructured data for robust economic analysis.

Learning Outcomes

On completion of the module, students will be able to:

  • Explain the evolution of central bank’s objectives.
  • Explain the basic principles, techniques, and methods used in text analysis for central banking, including but not limited to Natural Language Processing (NLP), sentiment analysis, and topic modelling.
  • Develop skills to effectively extract, clean, and process text data from various sources such as central bank websites, social media, news articles, financial reports, etc.
  • Apply text analysis techniques to derive meaningful insights from unstructured text data that can be used to address economic questions in the fields of finance, macroeconomics, microeconomics, and behavioural economics.
  • Evaluate the implications and potential limitations of using text analysis in economic research, including issues of bias, validity, and reliability.
  • Effectively communicate the results of text-based economic analysis in both written and oral forms, interpreting and presenting the findings in a manner that can inform economic understanding and decision-making.

Module Content

This course will examine the evolution of monetary policy and introduces students to practical statistical methods used in text analysis, specifically tailored for macroeconomic policy applications. Students will learn how these techniques can be leveraged to address a range of economic questions pertinent to central banking, including topics within finance, macroeconomics, and behavioural economics. However, the techniques used in this module could be easily adapted to microeconomics applications.

Recommended Reading List

Readings will be drawn from a selection of academic papers. Overviews of some of the core material covered in the module are covered by:

Papers:

  • Barro and Gordon (1983). A Positive Theory of Monetary Policy in a Natural Rate Model, Journal of Political Economy.
  • Cieslak, A., Hansen, S., McMahon, M. & Xiao, S. (2023). Policymakers’ Uncertainty (No. w31849). National Bureau of Economic Research.
  • Coenen, G., Ehrmann, M., Gaballo, G., Hoffmann, P., Nakov, A., Nardelli, S., Persson, E., & Strasser, G. (2017). Communication of monetary policy in unconventional times. ECB Working Paper Series, 2080.
  • Ehrmann, M., & Wabitsch, A. (2022). Central bank communication with non-experts – A road to nowhere?. Journal of Monetary Economics, 127, 69-85.
  • Hanifi, R., Istrefi, K., & Penalver, A. (2022). Central Bank Communication of Uncertainty. Centre for Economic Policy Research, Discussion Paper DP17728.
  • Masciandaro, D., Romelli, D., & Rubera, G. (2023). Monetary policy, Twitter and financial markets: evidence from social media traffic. Trinity Economic Papers (TEP) Working Paper No. 1023.
  • Taylor, J. B. (1993). Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy.

Textbooks:

  • Galì, J. (2015). Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press.
  • Walsh, C. E. (2010). Monetary theory and policy, MIT press.

Assessment

Assessment for the module is based on a final project accounting for 50% of the grade. In addition, students will hand in weekly problem sets worth 50%.

Module Website

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