Shocking Language: Understanding the Macroeconomic Effects of Central Bank Communication
42 Pages Posted: 19 Jan 2016
Date Written: December 16, 2015
We explore how the multi-dimensional aspects of information released by the FOMC have 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: Monetary policy, communication, Vector Autoregression
JEL Classification: E52, E58
Suggested Citation: Suggested Citation