Financial Stability and the Fed: Evidence from Congressional Hearings

40 Pages Posted: 15 May 2019

See all articles by Arina Wischnewsky

Arina Wischnewsky

University of Trier - Faculty of Economics; Universite du Luxembourg - Faculty of Law, Economics and Finance; Universite du Luxembourg - Department of Finance

David-Jan Jansen

De Nederlandsche Bank ; Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

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

Wischnewsky, Arina and Jansen, David-Jan and Neuenkirch, Matthias, Financial Stability and the Fed: Evidence from Congressional Hearings (May 9, 2019). De Nederlandsche Bank Working Paper No. 633 (2019), Available at SSRN: https://ssrn.com/abstract=3388181 or http://dx.doi.org/10.2139/ssrn.3388181

Arina Wischnewsky

University of Trier - Faculty of Economics ( email )

Germany

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

162a, avenue de la Faïencerie
Luxembourg-Limpertsberg, L-1511
Luxembourg

Universite du Luxembourg - Department of Finance ( email )

L-1511 Luxembourg
Luxembourg

David-Jan Jansen (Contact Author)

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

HOME PAGE: http://sites.google.com/site/djansenresearch

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Matthias Neuenkirch

University of Trier - Faculty of Economics ( email )

Universitätsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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