Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB

This study examines the relationship between the communication tone of the Fed and that of the ECB over the period from January 2000 to September 2023. The tones were measured using both lexicon-based and transform-based algorithms. Wavelet coherence analysis helped distinguish the scale of the relationship over time and frequency domains. Our findings suggest a dynamic process regarding the lead/lag positions, and the similarity of the two algorithms in the medium run highlights the leading role of the ECB during the (pre-)crisis period of the US and the leading role of the Fed during the QE period of the ECB. Hence, the variability in the leader/follower role suggests no strong predictive structural relationship between the two communication tones.