Financial Stability and the Fed: Evidence from Congressional Hearings
40 Pages Posted: 15 May 2019
There are 2 versions of this paper
Financial Stability and the Fed: Evidence from Congressional Hearings
Financial Stability and the Fed: Evidence from Congressional Hearings
Date Written: May 9, 2019
Abstract
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 Classification: E52, E58, N12
Suggested Citation: Suggested Citation