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

Abstract

This paper studies the informational content of publicly given speeches of FOMC members with a focus on financial stability, from 1997 to 2018. We document that presidents of Federal Reserve Banks spoke more than Board members around and after the financial crisis, and exhibit more variation in the topics of their speeches. Our speech-based indicators of financial stability-related topics show that, when added to a standard forward-looking Taylor rule, a higher speech intensity on these topics relates to a more accommodative monetary policy. This result is driven by the information in speeches of Fed presidents, not the Board or the Fed Chair. We discuss several channels that can rationalize this finding.

Keywords: Monetary Policy, Federal Reserve, Financial Stability, Communication

JEL Classification: E03, E50, E61