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The Voice of Monetary Policy

  • Yuriy Gorodnichenko
  • Tho Pham
  • Oleksandr Talavera
American Economic Review
vol. 113, no. 2, February 2023
(pp. 548-84)
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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.

Citation

Gorodnichenko, Yuriy, Tho Pham, and Oleksandr Talavera. 2023. "The Voice of Monetary Policy." American Economic Review, 113 (2): 548-84. DOI: 10.1257/aer.20220129

Additional Materials

JEL Classification

  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • E31 Price Level; Inflation; Deflation
  • E44 Financial Markets and the Macroeconomy
  • E52 Monetary Policy
  • E58 Central Banks and Their Policies
  • F31 Foreign Exchange
  • G14 Information and Market Efficiency; Event Studies; Insider Trading