The impact of central bankers’ speeches
In this paper, Ahrens et al. analyze the impact of central bankers’ speeches on financial markets and expectations. There is considerable research on the impact of post-meeting central bank communication on stabilizing uncertainty but only limited analysis of the impact speeches have. The authors develop a novel multimodal Natural Language Processing (NLP) method which they use on datasets of Fed’s Greenbook texts and forecasts as well as on FOMC members’ speeches. They find that:
- Speech-implied forecast revisions predict future changes in Survey of Professional Forecasters (SPF) forecasts substantially better than models that use purely tabular data and ignore the textual content of the speeches.
- Markets ‘listen’ or react more strongly to news in central bank speeches during abnormal GDP and inflation regimes. But find no evidence that speeches resolve uncertainty.
Our results challenge the conventional view that central bank communication primarily resolves uncertainty.
Mind Your Language: Market Responses to Central Bank Speeches
Authors: Maximilian Ahrens, Deniz Erdemlioglu, Michael McMahon, Christopher J. Neely, Xyie Yang
From: University of Oxford, IESEG School of Management, Federal Reserve Bank of St. Louis, Rutgers University
Should Fed officials give press conferences?
When Fed officials use too many words to convey the least possible information, then Greg Mankiw recommends:
Stop giving news conferences. The Fed’s policy decision and statement should stand by themselves. The Supreme Court does not give news conferences after announcing decisions. They explain their judgment once in writing and then let that stand. The Fed should do the same.
Memo to Fed: Stop the News Conferences
By: Greg Mankiw – Harvard University
