Media Perception of Fed Chair's Overconfidence and Market Expectations

This paper aims to assess the impact of media perception of Fed chair's overconfidence on market expectations. We first use a media-based proxy to compute a measure of Fed chair's overconfidence for the period 1999M01-2017M07, the overconfidence indicator. The overconfidence indicator provides a measure of the perceived overconfidence of the Fed chair by the media, and thus, by financial market participants. We relate this variable to inflation and unemployment expectations of market participants. Our results show that an overconfident Fed chair is associated with higher inflation expectations and lower unemployment expectations. These findings are robust to (i) the macroeconomic forecasts used to extract the exogenous component of the media-based proxy reflecting Fed chair's overconfidence, (ii) different measures of the media-based proxy used to quantify Fed chair's overconfidence and (iii) different measures of inflation expectations. These findings shed some new light on the impact of central bankers' personality on market expectations, and thus, on the effectiveness of their monetary policy decisions.