Central Bank Mandates and Monetary Policy Stances: through the Lens of Federal Reserve Speeches

92 Pages Posted: 31 Oct 2022

See all articles by Christoph Bertsch

Christoph Bertsch

Sveriges Riksbank - Research Division

Isaiah Hull

BI Norwegian Business School

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; Erasmus University Rotterdam (EUR) - Department of Econometrics; National Bureau of Economic Research (NBER); Tinbergen Institute

Xin Zhang

Sveriges Riksbank - Research Division

Date Written: October 19, 2022

Abstract

When does the Federal Reserve deviate from its dual mandate of pursuing the economic goals of maximum employment and price stability and what are the consequences? We assemble the most comprehensive collection of Federal Reserve speeches to-date and apply state-of-the-art natural language processing methods to extract a variety of textual features from each paragraph of each speech. We find that the periodic emergence of non-dual mandate related discussions is an important determinant of time-variations in the historical conduct of monetary policy with implications for asset returns. The period from mid-1996 to late-2010 stands out as the time with the narrowest focus on balancing the dual mandate. Prior to the 1980s there was a outsized attention to employment and output growth considerations, while non dual-mandate discussions centered around financial stability considerations emerged after the Great Financial Crisis. Forward-looking financial stability concerns are a particularly important driver of a less accommodative monetary policy stance when Fed officials link these concerns to monetary policy, rather than changes in banking regulation. Conversely, discussions about current financial crises and monetary policy in the context of inflation-employment themes are associated with a more accommodative policy stance.

Keywords: Natural Language Processing, Machine Learning, Central Bank Communication, Financial Stability, Zero Shot Classification, Extractive Question Answering, Semantic Textual Similarity

JEL Classification: C63, D84, E32, E7

Suggested Citation

Bertsch, Christoph and Hull, Isaiah and Lumsdaine, Robin L. and Zhang, Xin, Central Bank Mandates and Monetary Policy Stances: through the Lens of Federal Reserve Speeches (October 19, 2022). Available at SSRN: https://ssrn.com/abstract=4255978 or http://dx.doi.org/10.2139/ssrn.4255978

Christoph Bertsch

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Isaiah Hull

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Robin L. Lumsdaine (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Xin Zhang

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
45
Abstract Views
145
PlumX Metrics