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Shocking Language: Understanding the macroeconomic effects of central bank communication

Author

Listed:
  • Stephen Hansen

    (Departament d'Economia i Empresa (Department of Economics and Business)
    Universitat Pompeu Fabra (Pompeu Fabra University)
    Barcelona Graduate School of Economics (Barcelona GSE))

  • Michael McMahon

    (Department of Economics University of Warwick
    Centre for Macroeconomics (CFM))

Abstract
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.

Suggested Citation

  • Stephen Hansen & Michael McMahon, 2015. "Shocking Language: Understanding the macroeconomic effects of central bank communication," Discussion Papers 1537, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1537
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; communications; Vector Autoregression;
    All these keywords.

    JEL classification:

    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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