DP15932 The Voice of Monetary Policy

Author(s): Yuriy Gorodnichenko, Tho Pham, Oleksandr Talavera
Publication Date: March 2021
Date Revised: March 2021
Keyword(s): Bond market, communication, Emotion, monetary policy, Stock market, text sentiment, voice
JEL(s): D84, E31, E58, G12
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15932

We develop a deep learning model to detect emotions embedded in press conferences after the meetings of the Federal Open Market Committee and examine the influence of the detected emotions on financial markets. We find that, after controlling for the Fed's actions and the sentiment in policy texts, positive tone in the voices of Fed Chairs leads to statistically significant and economically large increases in share prices. In other words, how policy messages are communicated can move the stock market. In contrast, the bond market appears to take few vocal cues from the Chairs. Our results provide implications for improving the effectiveness of central bank communications.