The Voice of Monetary Policy
Yuriy Gorodnichenko, Tho Pham, Oleksandr Talavera
American Economic Review · 2023 · Volume 113 · Issue 2
Abstract
We develop a deep learning model to detect emotions embedded in press conferences after the Federal Open Market Committee meetings and examine the influence of the detected emotions on financial markets. We find that, after controlling for the Federal Reserve's actions and the sentiment in policy texts, a positive tone in the voices of Federal Reserve chairs leads to significant increases in share prices. Other financial variables also respond to vocal cues from the chairs. Hence, how policy messages are communicated can move the financial market. Our results provide implications for improving the effectiveness of central bank communications.
Keywords
Search, Learning, Information and Knowledge, Communication, Belief, Unawareness, Price Level, Inflation, Deflation, Financial Markets and the Macroeconomy, Monetary Policy, Central Banks and Their Policies, Foreign Exchange, Information and Market Efficiency, Event Studies, Insider Trading
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