Working Paper: CEPR ID: DP11018
Authors: Stephen Hansen; Michael McMahon
Abstract: 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.
Keywords: communication; monetary policy; vector autoregression
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shocks to forward guidance (E60) | market and real variables (E44) |
| communication about future interest rates (E43) | expectations (D84) |
| expectations (D84) | market behavior (D40) |
| monetary policy stance (E63) | market responses (D49) |