Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences

56 Pages Posted: 3 Dec 2015 Last revised: 22 Feb 2017

Oliver Boguth

Arizona State University (ASU) - Finance Department

Vincent Gregoire

University of Melbourne - Department of Finance

Charles Martineau

University of British Columbia, Sauder School of Business, Students

Date Written: February 8, 2017

Abstract

In an effort to increase transparency, the Chair of the Federal Reserve now holds a press conference following some, but not all, Federal Open Market Committee announcements. Press conferences are scheduled independently of economic conditions, and we show that they communicate little information. Evidence from equity and derivative markets demonstrates that investors lower their expectations of important announcements on days without press conferences, thereby constraining the actions of a committee that wants to avoid surprising markets. Using media coverage and Google searches, we show that investors shift attention away from announcements without press conferences. This inattention further hinders the Fed's attempts to coordinate market expectations and therefore prevents effective monetary policy. Correspondingly, we show that announcements not followed by press conferences convey significantly less price-relevant information.

Keywords: Federal Reserve, Press Conferences, Transparency, Uncertainty, Attention

JEL Classification: G10, G14, G18, E58

Suggested Citation

Boguth, Oliver and Gregoire, Vincent and Martineau, Charles, Shaping Expectations and Coordinating Attention: The Unintended Consequences of FOMC Press Conferences (February 8, 2017). Melbourne Business School, 2016 Financial Institutions, Regulation & Corporate Governance (FIRCG) Conference; 2016 Financial Markets and Corporate Governance. Available at SSRN: https://ssrn.com/abstract=2698477 or http://dx.doi.org/10.2139/ssrn.2698477

Oliver Boguth

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Vincent Gregoire

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Charles Martineau (Contact Author)

University of British Columbia, Sauder School of Business, Students ( email )

Vancouver
Canada

HOME PAGE: http://www.charlesmartineau.com

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