Sweden's Central Bank Poised to Give the Krona a Boost

Following the global financial crisis in 2008, central banks increasingly focused on providing so-called forward guidance that would make clear where they expected monetary policy to head. To a large extent, monetary policy works through a concept known as the "expectations channel," which is the ability of central banks to influence the outlook for growth and inflation among investors.

There is no universally accepted quantitative measure of the concept. However, we have developed a measure of whether central bank communication is "hawkish" or "dovish" that we call the Forward Guidance Indicator. The FGI is based on the simple idea that each policy statement issued by a central bank contains words that can be categorized by their relation to either the economy and/or the monetary policy based on a list of about 100 hawkish words such as "expansion" or "recovery" and 100 dovish words such as "slowdown" and "recession." The FGI is calculated so the index will always be between -2 if all words are dovish and 2 if all words are hawkish.