Shifts in ECB Communication: A Textual Analysis of the Press Conferences

This paper investigates how European Central Bank (ECB) communication, made during the press conference, affects stock market volatility. First, the ECB press conferences are dissected into topics using Latent Dirichlet Allocation (LDA). Then turning points in ECB communication are captured using the estimated topic probabilities. The proposed approach does not rely on subjective interpretation of topical content. The paper finds that (i) the topics reveal communication patterns that match the ECB monetary policy stance, (ii) the content of the ECB press conference is informative for the market, and (iii) market uncertainty increases when the ECB switches to a different communication regime.