A recent report featuring key results of MILA: publikationen.bundesbank.de/publikatione...

Our @bundesbank.de research paper dives into the methodology. www.bundesbank.de/resource/blo...

MILA’s granular approach outperforms typical full-document analyses in replicability and consistency. Despite the stochastic nature of language models, it delivers consistent results - so no need to lower the temperature to ensure replicability 3/

MILA combines text mining, a large language model (LLama 3.1 70B), mathematical formulas and topic modeling 2/

𝗡𝗲𝘄 𝗥𝗲𝘀𝗲𝗮𝗿𝗰𝗵: 𝗠𝗜𝗟𝗔 (𝗠𝗼𝗻𝗲𝘁𝗮𝗿𝘆-𝗜𝗻𝘁𝗲𝗹𝗹𝗶𝗴𝗲𝗻𝘁 𝗟𝗮𝗻𝗴𝘂𝗮𝗴𝗲 𝗔𝗴𝗲𝗻𝘁)

We introduce MILA—a new AI-driven solution for analyzing central bank communication.

MILA operates on individual sentences by using the macro and in-document context. 1/n

(c) Nadine Jakobs

Guten Morgen aus #Frankfurt!
Wir begrüßen Sie auf unserem offiziellen Bluesky-Kanal!👋

Ab heute halten wir Sie hier über alles Wissenswerte rund um die #Geldpolitik, #Bankenaufsicht und #Finanzstabilität sowie über viele weitere Aufgaben der #Bundesbank auf dem Laufenden.

#HerzlichWillkommen

Source: publikationen.bundesbank.de/https:/publi...

➡️ Recently, the stance has been more accommodative than policy rates suggest. This reflects lower longer-term rates and narrower spreads on sovereign and corporate bonds by historical standards, i.e. given the policy rate level, long-term rates and risk spreads historically tended to be higher. \5

➡️ Between 2022 and 2023, the extent of monetary policy tightening was comparable to the actual rise in key interest rates, but tightening began six months earlier given anticipation effects already reflected in financial market prices. \4

➡️ The rate suggests that the monetary policy stance between 2012 and 2021 was considerably more accommodative than signalled by policy rates. This comes not as a surprise, given that the proxy rate picks up impact of asset purchases and forward guidance during the effective lower bound regime. \3

➡️ The proxy rate maps common movements of a set of financial market variables to the actual DFR policy rate level following Doh and Choi (2016). 2\

How to measure the broader monetary policy stance in the euro area?
In our latest @bundesbank.de report, we present the proxy monetary policy rate, which combines information from the risk-free yield curve and risk assets. 1\ #EconSky @plieberk.bsky.social

Source: publikationen.bundesbank.de/publikatione...

Since 2011, the tone of the ECB Executive Board’s monetary policy speeches has evolved in line with the ECB press conferences and the macroeconomic environment in the euro area. Some dispersion of speeches visible during the recent tightening and easing phase. \4

𝗦𝗵𝗶𝗳𝘁𝗶𝗻𝗴 𝗽𝗼𝗹𝗶𝗰𝘆 𝘀𝗶𝗴𝗻𝗮𝗹𝘀: MILA detects a dovish stance in 2020; a balanced inflation narrative in 2021, but still a dovish rate outlook; then a hawkish shift in 2022-23. By 2024, communication became more balanced. \3

𝗔𝗜-𝗽𝗼𝘄𝗲𝗿𝗲𝗱 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀: MILA provides structured assessments of ECB communication from 2011 to 2024, analyzing around 50,000 sentences on an individual basis. \2

At @bundesbank.de, we have developed 𝗠𝗜𝗟𝗔 (𝗠𝗼𝗻𝗲𝘁𝗮𝗿𝘆-𝗜𝗻𝘁𝗲𝗹𝗹𝗶𝗴𝗲𝗻𝘁 𝗟𝗮𝗻𝗴𝘂𝗮𝗴𝗲 𝗔𝗴𝗲𝗻𝘁) - an AI tool designed to evaluate ECB communication, assessing individual sentences from monetary policy statements and speeches given in-document as well as the macro context. \1 #EconSky

The script has flipped 🌎

- Euro area macro drives euro yields aka Bunds up
- US macro drives these yields down.

US Treasuries: slide. 🛝
Bunds: hold my beer. 🍺

Yesterday I delivered a speech with the title “No longer convenient? Safe asset abundance and r*” at the @bankofengland.bsky.social's #2025BEARconference. Let me summarise the main messages in a 🧵. 1/16

This is an important observation by @isabelschnabel.bsky.social:

Typically, tight monetary policy transmits also by increasing risk premia on financial markets. Without it, transmission is notably weaker.

During the recent hiking cycle, we did not observe this feature.

bsky.app/profile/flxg...

In my interview with @financialtimes.com published today I explained my current thinking about the @ecb.europa.eu ’s monetary policy and gave some personal reflections on the upcoming update of our monetary policy strategy. Let me briefly summarise the main points in a 🧵. 1/16

As we can no longer be confident that our monetary policy is restrictive, the direction of travel is less clear, Executive Board member @isabelschnabel.bsky.social tells @financialtimes.com. We are nearing the point where we may need to pause or halt our rate cuts.

www.ecb.europa.eu/press/inter/...

Many #ECB watchers have waited for this article. Chart A shows the huge model uncertainty surrounding the estimates. Adding parameter and filter uncertainty, data revisions and considering all models (not just those available for Q4 2024), you can see what we know about r* ... very little.

Moritz Kuhn Moritz Kuhn Professor Department of Economics University of Mannheim L 7, 3-5, 68161 Mannheim, Germany mokuhn@uni-mannheim.de +49 621 181 1929 Office hours: please send an email (judith.price@uni-ma...

To all econ students on the market and advisors: I am thinking about filling an additional postdoc position at the University of Mannheim working on portfolio choice, wealth inequality, and labor markets. Interested? If yes, please let me know!
sites.google.com/site/kuhneco...

It's high time to have another look at interesting papers like this one!

"Anticipation effects of protectionist U.S. trade policies" by Norbert Metiu.

Article in the Journal of International Economics:

www.sciencedirect.com/science/arti...

Working paper:

papers.ssrn.com/sol3/papers....

Estimates are based on affine / lower-bound term structure models augmented by survey information.

US: Kim and Wright (2005, 2011)
EA: Geiger and Schupp (2019)

Still, there are signficant level differences between US and EA yield curve components. 3/n

Corresponding change in average short-term rate expectations shows close co-movement since 1999 with EA expectations typically lagging its US peers (if at all). 2/n

🧵As 𝘁𝗲𝗿𝗺 𝗽𝗿𝗲𝗺𝗶𝘂𝗺𝘀 took center stage these days - Chart depicts dynamics for US and EA 1/n

➡️99-12: strong co-movement

➡️12-20: EA term premium collapses relative to US

➡️22-24: de-compression more pronounced in EA

➡️since mid-24: degree of US term premium rise is only partly matched by EA

#EconSky