Working Paper: NBER ID: w30210
Authors: Charles W. Calomiris; Joanna Harris; Harry Mamaysky; Cristina Tessari
Abstract: We introduce FDIF, a measure of Fed communication surprise based on the text of FOMC statements. FDIF measures the difference between text-implied and actual values of key market variables. Positive FDIF of countercyclical variables (e.g., credit spreads) is associated with negative macroeconomic forecast revisions; the opposite holds for procyclical variables. Industries that hedge bad FDIF news earn low returns on FOMC announcement days, but high returns on non-FOMC days. The opposite holds for FDIF-exposed industries, and the return differences are large. Controlling for FDIF exposure, rate-based policy surprise measures are not priced in the cross-section of industry returns.
Keywords: No keywords provided
JEL Codes: E32; E44; E52; G1; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fdif (Fed communication surprise) (E52) | negative macroeconomic forecast revisions (E66) |
| fdif (Fed communication surprise) (E52) | positive macroeconomic forecast revisions (E66) |
| negative fdif news (F23) | lower returns on FOMC announcement days (G14) |
| positive fdif news (F23) | higher returns on non-FOMC days (G14) |
| fdif measure (C52) | priced risk in the cross-section of industry returns (G12) |
| countercyclical fdif variables (E39) | negative price of risk (D81) |
| procyclical fdif variables (E39) | positive risk premia (G19) |