Does Fed Policy Reveal a Ternary Mandate?

37 Pages Posted: 27 Sep 2016

See all articles by Joe Peek

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Geoffrey M. B. Tootell

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: 2016-09-01

Abstract

This paper examines the role of financial instability in setting monetary policy. The paper begins with a model that examines the interaction of monetary and regulatory policy. It then empirically tests whether financial instability has affected monetary policy. One important innovation is to construct a measure of financial instability directly related to the FOMC financial instability concerns expressed in FOMC meeting transcripts. We find that, even after controlling for forecasts of inflation and unemployment, the word counts of terms related to financial instability do correlate with monetary policy decisions. Thus, the FOMC not only “talks the talk” about financial stability, but it “walks the walk.”

JEL Classification: E44, E52, E58

Suggested Citation

Peek, Joe and Rosengren, Eric S. and Tootell, Geoffrey M.B., Does Fed Policy Reveal a Ternary Mandate? (2016-09-01). FRB of Boston Working Paper No. 16-11, Available at SSRN: https://ssrn.com/abstract=2844067

Joe Peek (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

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Boston, MA 02210
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Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

Geoffrey M.B. Tootell

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
(617) 973-3430 (Phone)

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