Introduction

Cambodia’s economy presents a unique case study, characterized by its high degree of dollarization and the concomitant challenges this poses for the implementation of independent monetary policy. Despite significant strides in the growth and expansion of its national currency, the Riel, in the 2000s, the National Bank of Cambodia (NBC) contends with substantial challenges. Chief among these is the underdevelopment of the financial market, which limits the NBC’s arsenal of modern monetary policy tools and complicates the management of the nation’s monetary system.

In an economic setting where traditional mechanisms for enacting monetary policy remain nascent, the development of effective monetary policy communication tools and strategies becomes crucial. This need is particularly pronounced in the Cambodian context, where efforts towards de-dollarization and the modernization of monetary policy execution could introduce considerable policy uncertainty. Managing and minimizing this uncertainty is essential for ensuring the stability and predictability of the economic system.

Understanding and quantifying central bank policy uncertainty thus emerges as a pivotal task. This undertaking is not only central to comprehending the broad-ranging impact of such uncertainty on Cambodia’s economy and financial markets but also crucial for the central bank’s communication efficacy. Effectively articulating policy stances to the public and the financial markets is integral to nurturing transparency and trust.

Our study delves into the effectiveness of a narrative, topic-based method in measuring policy uncertainty in Cambodia’s monetary context. Utilizing text-based topic modeling, this method provides a sophisticated and nuanced understanding of the various themes and drivers of uncertainty. It goes beyond mere numerical quantification, shedding light on the specific nature of the uncertainty, be it related to exchange rate policy, currency stabilization, or de-dollarization efforts.

In Cambodia’s dollarized economy, monetary policy is often centered around the intricate management of its dual-currency system, balancing the influences of the U.S. Dollar and the Cambodian Riel. The multifaceted nature of uncertainty in this context, encompassing potential policy shifts and their economic ramifications, underscores the need for a methodologically robust and contextually tailored approach to understanding policy uncertainty. Our research addresses this need by applying and critically evaluating the topic-based method.

The insights gleaned from our approach extend beyond theoretical discourse, offering practical implications for policymakers, economists, and analysts navigating Cambodia’s distinctive monetary environment. This introduction sets the stage for a comprehensive exploration of central bank policy uncertainty in Cambodia, highlighting the significance of our research in both academic and practical realms.