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More Than Words: Fed Chairs’ Communication During Congressional Testimonies

Author

Listed:
  • Michelle Alexopoulos
  • Xinfen Han
  • Oleksiy Kryvtsov
  • Xu Zhang

Abstract

We measure soft information contained in the congressional testimonies of U.S. Federal Reserve Chairs and analyze its effect on financial markets. Our measures of Fed Chairs’ emotions expressed in words, voice and facial expressions are created using machine learning. Increases in the Chair’s text-, voice-, or face-emotion indices during these testimonies generally raise the SandP500 index and lower the VIX—indicating that these cues help shape market responses to Fed communications. These effects add up and propagate after the testimony, reaching magnitudes comparable to those after a policy rate cut. Markets respond most to the Chair’s emotions expressed about issues related to monetary policy.

Suggested Citation

  • Michelle Alexopoulos & Xinfen Han & Oleksiy Kryvtsov & Xu Zhang, 2022. "More Than Words: Fed Chairs’ Communication During Congressional Testimonies," Staff Working Papers 22-20, Bank of Canada.
    • Handle: RePEc:bca:bocawp:22-20
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    References listed on IDEAS

    as
    1. Ehrmann, Michael & Talmi, Jonathan, 2020. "Starting from a blank page? Semantic similarity in central bank communication and market volatility," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 48-62.
    2. Dietrich, Bryce J. & Enos, Ryan D. & Sen, Maya, 2019. "Emotional Arousal Predicts Voting on the U.S. Supreme Court," Political Analysis, Cambridge University Press, vol. 27(2), pages 237-243, April.
    3. Cieslak, Anna & Schrimpf, Andreas, 2019. "Non-monetary news in central bank communication," Journal of International Economics, Elsevier, vol. 118(C), pages 293-315.
    4. repec:cup:apsrev:v:113:y:2019:i:04:p:941-962_00 is not listed on IDEAS
    5. Dietrich, Bryce J. & Hayes, Matthew & O’Brien, Diana Z., 2019. "Pitch Perfect: Vocal Pitch and the Emotional Intensity of Congressional Speech," American Political Science Review, Cambridge University Press, vol. 113(4), pages 941-962, November.
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    Cited by:

    1. Dimitrios Kanelis & Pierre L. Siklos, 2022. "Emotion in Euro Area Monetary Policy Communication and Bond Yields: The Draghi Era," CQE Working Papers 10322, Center for Quantitative Economics (CQE), University of Muenster.

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    More about this item

    Keywords

    Central bank research; Financial markets; Monetary policy communications;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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