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Fed Communication on Financial Stability Concerns and Monetary Policy Decisions: Revelations from Speeches

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  • Istrefi, Klodiana
  • Odendahl, Florens
  • Sestieri, Giulia

Abstract

This paper studies the informational content of speeches of Fed officials, focusing on financial stability, from 1997 to 2018. We construct indicators that measure the intensity and tone of this topic for both Governors and FRB presidents. When added to a standard forward-looking Taylor rule, a higher topic intensity or negative tone is associated with more monetary policy accommodation than implied by the state of the economy. Our results are mainly driven by the sample prior to the global financial crisis and the information in speeches of FRB presidents. We discuss several channels to account for these findings.

Suggested Citation

  • Istrefi, Klodiana & Odendahl, Florens & Sestieri, Giulia, 2022. "Fed Communication on Financial Stability Concerns and Monetary Policy Decisions: Revelations from Speeches," CEPR Discussion Papers 17671, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17671
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    Cited by:

    1. Arina Wischnewsky & David‐Jan Jansen & Matthias Neuenkirch, 2021. "Financial stability and the Fed: Evidence from congressional hearings," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1192-1214, July.
    2. Aabid Karim & Heman Das Lohano, 2024. "Sentiment Analysis of State Bank of Pakistan's Monetary Policy Documents and its Impact on Stock Market," Papers 2408.03328, arXiv.org.
    3. Jean-Charles Bricongne & Baptiste Meunier & Raquel Caldeira, 2024. "Should Central Banks Care About Text Mining? A Literature Review," Working papers 950, Banque de France.
    4. Martin Baumgaertner & Johannes Zahner, 2021. "Whatever it takes to understand a central banker - Embedding their words using neural networks," MAGKS Papers on Economics 202130, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Rayane Hanifi & Klodiana Istrefi & Adrian Penalver, 2022. "Central Bank Communication of Uncertainty," Working papers 898, Banque de France.
    6. Klodiana Istrefi & Florens Odendahl & Giulia Sestieri, 2022. "ECB Communication and its Impact on Financial Markets," Working papers 859, Banque de France.
    7. Stolbov, Mikhail & Shchepeleva, Maria & Karminsky, Alexander, 2022. "When central bank research meets Google search: A sentiment index of global financial stress," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    8. Parle, Conor, 2022. "The financial market impact of ECB monetary policy press conferences — A text based approach," European Journal of Political Economy, Elsevier, vol. 74(C).
    9. Baumgärtner, Martin & Zahner, Johannes, 2023. "Whatever it takes to understand a central banker: Embedding their words using neural networks," IMFS Working Paper Series 194, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).

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    More about this item

    Keywords

    Federal Reserve; Financial stability; communications; Monetary policy;
    All these keywords.

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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