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Deconstructing the Fed’s decisions: analysis of the factors influencing monetary policy in the US

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  • Łukasz Below

    (Warsaw School of Economics.)

Abstract

While the impact of monetary policy on the economy is a well-researched topic, the influence of economic conditions on the monetary policy decision-making process attracts scant attention in the existing literature. In theory, monetary policy goals are well-established by legal acts, but the decision- -making process conducted by the policymakers is impacted by many factors related to the real economy and financial markets. In this paper, I deconstruct the process executed by the Federal Open Market Committee by estimating a factor model on the basis of data extracted from the FOMC minutes by means of text mining. I therefore find that variables connected with financial markets, housing, and investment, as well as the global economy may cause a significant divergence of interest rates from the policy rule, as constructed on the official monetary policy goals.

Suggested Citation

  • Łukasz Below, 2024. "Deconstructing the Fed’s decisions: analysis of the factors influencing monetary policy in the US," Bank i Kredyt, Narodowy Bank Polski, vol. 55(5), pages 623-660.
    • Handle: RePEc:nbp:nbpbik:v:55:y:2024:i:5:p:623-660
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    More about this item

    Keywords

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    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
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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