Shocking language: understanding the macroeconomic effects of central bank communication

By Stephen Hansen, Michael McMahon. 2016

325 citations recorded by the source corpus.

We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/88750b8bdfee102e38a44c2f58370778446cb9b3

Citations in the corpus

• Delphic and odyssean monetary policy shocks: Evidence from the euro area (2018, unknown): “6 Jarociński and Karadi (2018)—developed independently of us—also introduce (different) sign and zero restrictions to disentangle a pure monetary policy shock from an information shock: They identify a monetary policy shock purged of information effects as an interest rate hike accompanied by a decl”
• Sentiment in Central Banks’ Financial Stability Reports* (2017, unknown): “Recent studies in this strand of the literature have used text analysis techniques to determine the effect of central banks’ monetary policy communications on asset prices and real variables (Hansen and McMahon, 2016; Hubert and Labondance, 2017).”
• The Voice of Monetary Policy (2021, unknown): “However, using monthly data over the 1998 – 2014 period, Hansen and McMahon (2016) find a statistically insignificant reaction of stock markets to FOMC statements which focus on strong economic conditions.”
• Measuring euro area monetary policy (2019, unknown): “Some of the recent work in this vein are Jaroci«ski and Karadi (2018), who use stock-bond correlations to identify central bank information signaling as opposed to classical monetary policy surprises; Andrade and Ferroni (2016), using index-linked swaps for the same purpose; and Cieslak and Schrimpf”
• The Economics of the Fed Put (2020, unknown): “, Hayford and Malliaris (2004), Fuhrer and Tootell (2008), Bjørnland and Leitemo (2009), Ravn (2012), Hoffmann (2013).”
• Measuring news sentiment (2020, unknown): “Another type that is increasingly being used in economics and finance is topic analysis (see, for example, Hansen and McMahon (2016), Hansen, McMahon, and Prat (2017), Thorsrud (2016a), and Thorsrud (2016b)).”