DP11018 Shocking language: Understanding the macroeconomic effects of central bank communication

Author(s):	Stephen Hansen, Michael McMahon
Publication Date:	December 2015
Keyword(s):	communication, monetary policy, Vector Autoregression
JEL(s):	E52, E58
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11018

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.