Fed Communication on Financial Stability Concerns and Monetary Policy Decisions: Revelations from Speeches
49 Pages Posted: 1 Apr 2021
Date Written: March 29, 2021
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 Fed 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 information in speeches of Fed presidents. We discuss several channels to rationalize this finding.
Keywords: monetary policy, Federal Reserve, financial stability, communication
JEL Classification: E03, E50, E61
Suggested Citation: Suggested Citation