DP17671 Fed Communication on Financial Stability Concerns and Monetary Policy Decisions: Revelations from Speeches
This paper studies the informational content of speeches of Fed officials, focusing on financial stability, from 1997 to 2018. We construct indicators that measure the intensity and tone of this topic for both Governors and FRB presidents. When added to a standard forward-looking Taylor rule, a higher topic intensity or negative tone is associated with more monetary policy accommodation than implied by the state of the economy. Our results are mainly driven by the sample prior to the global financial crisis and the information in speeches of FRB presidents. We discuss several channels to account for these findings.