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Financial stability and the Fed: evidence from congressional hearings

Author

Listed:
  • Arina Wischnewsky
  • David-Jan Jansen
  • Matthias Neuenkirch

Abstract

This paper retraces how financial stability considerations interacted with U.S. monetary policy before and during the Great Recession. Using text-mining techniques, we construct indicators for financial stability sentiment expressed during testimonies of four Federal Reserve Chairs at Congressional hearings. Including these text-based measures adds explanatory power to Taylor-rule models. In particular, negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylor-rule factors, even in the decades before the Great Recession. These findings are consistent with a preference for monetary policy reacting to financial instability rather than acting pre-emptively to a perceived build-up of risks.

Suggested Citation

  • Arina Wischnewsky & David-Jan Jansen & Matthias Neuenkirch, 2019. "Financial stability and the Fed: evidence from congressional hearings," CESifo Working Paper Series 7657, CESifo.
    • Handle: RePEc:ces:ceswps:_7657
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    Cited by:

    1. Wang, Hao & Xu, Ning & Yin, Haiyan & Ji, Hao, 2022. "The dynamic impact of monetary policy on financial stability in China after crises," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    2. Baumgärtner, Martin & Zahner, Johannes, 2025. "Whatever it takes to understand a central banker — Embedding their words using neural networks," Journal of International Economics, Elsevier, vol. 157(C).
    3. Jan Schulz & Kerstin Hötte & Daniel M. Mayerhoffer, 2024. "Pluralist economics in an era of polycrisis," Review of Evolutionary Political Economy, Springer, vol. 5(2), pages 201-218, September.
    4. Khwazi Magubane & Jacques de Jongh & Precious Mncayi-Makhanya & Jabulile Makhalima & Phindile Maziya & Boingotlo Wesi, 2024. "Does financial stability spur or retard output and price stability in South Africa?," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 13(9), pages 138-156, December.
    5. Spandan Banerjee & Rajendra N. Paramanik & Rounak Sil & Unninarayanan Kurup, 2024. "When all speak, should we listen? A cross‐country analysis of disagreement in policymaking and its implications," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 53(2), July.
    6. Mikael Apel & Marianna Blix Grimaldi & Isaiah Hull, 2022. "How Much Information Do Monetary Policy Committees Disclose? Evidence from the FOMC's Minutes and Transcripts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1459-1490, August.
    7. Pinar Deniz & Thanasis Stengos, 2025. "Who Is Leading in Communication Tone? Wavelet Analysis of the Fed and the ECB," JRFM, MDPI, vol. 18(4), pages 1-19, April.
    8. Alexopoulos, Michelle & Han, Xinfen & Kryvtsov, Oleksiy & Zhang, Xu, 2024. "More than words: Fed Chairs’ communication during congressional testimonies," Journal of Monetary Economics, Elsevier, vol. 142(C).
    9. Johannes Zahner, 2020. "Above, but close to two percent. Evidence on the ECB’s inflation target using text mining," MAGKS Papers on Economics 202046, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Istrefi, Klodiana & Odendahl, Florens & Sestieri, Giulia, 2023. "Fed communication on financial stability concerns and monetary policy decisions: Revelations from speeches," Journal of Banking & Finance, Elsevier, vol. 151(C).
    11. Andres Algaba & David Ardia & Keven Bluteau & Samuel Borms & Kris Boudt, 2020. "Econometrics Meets Sentiment: An Overview Of Methodology And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 512-547, July.
    12. Kazinnik, Sophia & Papell, David H., 2021. "Monetary policy rules in practice: The case of Israel," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 308-320.
    13. Dimitrios Kanelis & Pierre L. Siklos, 2025. "The ECB press conference statement: deriving a new sentiment indicator for the euro area," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 652-664, January.
    14. Ruman, Asif M., 2023. "A Comparative Textual Study of FOMC Transcripts Through Inflation Peaks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 87(C).
    15. Stolbov, Mikhail & Shchepeleva, Maria & Karminsky, Alexander, 2022. "When central bank research meets Google search: A sentiment index of global financial stress," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    16. Hayo, Bernd & Henseler, Kai & Steffen Rapp, Marc & Zahner, Johannes, 2022. "Complexity of ECB communication and financial market trading," Journal of International Money and Finance, Elsevier, vol. 128(C).
    17. Kanelis, Dimitrios & Kranzmann, Lars H. & Siklos, Pierre L., 2025. "The financial instability - Monetary policy nexus: Evidence from the FOMC minutes," Discussion Papers 13/2025, Deutsche Bundesbank.
    18. Ahmad S. Al Humssi & Vladimir Z. Chapliuk & Larisa N. Sorokina & Liliya G. Akhmetshina, 2024. "Modelling the Impact of Macroeconomic Factors on Country’s Financial Stability: Evidence from the Russian Federation," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 62-81.
    19. Curi, Claudia & Murgia, Lucia Milena, 2023. "Forecast Targeting and Financial Stability: Evidence from the European Central Bank and Bank of England," Finance Research Letters, Elsevier, vol. 51(C).

    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
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-

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