Financial Inclusion and Policy Shocks: An Application of Topic Modeling on Central Banks’ SDG-Driven Policy Predilection for Asia and Pacific Economies

Financial Inclusion (FI) plays a determining role in achieving inclusive and sustainable macroeconomic policy outcomes, one of the fundamental premises of the Sustainable Development Goals (SDGs). Further, the countries' central banks formulate related policies and contribute as enablers to the transmission pathway from inclusive policymaking to sustainable and equitable economic growth. Country-specific studies, mostly restricted to a specific financial inclusion scheme/initiative, examined the role of financial inclusion in shaping SDG deliverables, with a particular focus only on poverty alleviation and equitable income generation. Also, no empirical exploration has yet been performed to ascertain the role of central banks’ policy biases/priorities in expediting the attainment of sustainable macroeconomic targets. By deploying a fixed-effect panel regression strategy and an instrumental variable technique on fifteen major Asia-Pacific economies for 31 years, this study negates the solitary role of FI factors in influencing the changing spectrum of SDG targets. This research further explores Millennium Development Goals (MDGs), SDGs, the Asian financial crisis of 1997, and the global financial crisis of 2008 as policy shocks/interventions and observes their positive contribution in shaping the results of sustainable economic development targets. Further, this study uniquely deploys a Natural Language Processing (NLP) technique on Central Bank’s annual reports, monetary policy statements, and press releases for the fifteen countries from 2000-2022 and analyzed 1815 documents through Topic Modeling. This paper concludes that central banks’ policy inclination toward sustainable macroeconomic development has increased over the years and substantially improved with the emergence of policy shocks. With the country clustering/grouping observed in this exploration, it is evident that central banks of the Asia Pacific countries have a unidirectional, however heterogeneous, intent to contribute to the broader national objectives of attaining SDGs.