Taylor Rule: The Information Content From FOMC Transcripts

69 Pages Posted: 15 May 2020 Last revised: 29 Jun 2020

See all articles by Nataliia Ostapenko

Nataliia Ostapenko

University of Tartu - Department of Economics

Date Written: May 9, 2020

Abstract

Do Federal Open Market Committee (FOMC) discussions contain additional information for Taylor rule estimation? While researchers usually estimate a Taylor rule with official forecasts of the output gap and inflation, this paper sheds light on the importance of additional information contained in the FOMC discussions. Using textual analysis techniques I detect all economic phrases from FOMC transcripts and assign the tone to these phrases. Afterwards, I use Bayesian LASSO with time-varying parameters and show that the Fed changes its federal funds target also in response to FOMC members’ uncertainty about inflation expectations and financial markets.

Keywords: FOMC, Transcripts, Sentiment, Taylor, Uncertainty, Positiveness

JEL Classification: E52, E31, E00

Suggested Citation

Ostapenko, Nataliia, Taylor Rule: The Information Content From FOMC Transcripts (May 9, 2020). Available at SSRN: https://ssrn.com/abstract=3597187 or http://dx.doi.org/10.2139/ssrn.3597187

Nataliia Ostapenko (Contact Author)

University of Tartu - Department of Economics ( email )

Narva 4-A123
Tartu, 51009
Estonia

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