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09 mei 2019 Onderzoek
This paper retraces how financial stability considerations interacted with U.S. monetary policy before and during the Great Recession. Using text-mining techniques, we construct indicators for financial stability sentiment expressed during testimonies of four Federal Reserve Chairs at Congressional hearings. Including these text-based measures adds explanatory power to Taylor-rule models. In particular, negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylor-rule factors, even in the decades before the Great Recession. These findings are consistent with a preference for monetary policy reacting to financial instability rather than acting pre-emptively to a perceived build-up of risks.
 
Keywords: monetary policy, financial stability, Taylor rule, text mining.
JEL classifications: E52, E58, N12.

Working paper no. 633

633 - Financial Stability and the Fed: Evidence from Congressional Hearings

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authors

  • Arina Wischnewsky
  • David-Jan Jansen
  • Matthias Neuenkirch