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Shocking language: Understanding the macroeconomic effects of central bank communication

Listed author(s):
  • Hansen, Stephen

    (Universitat Pompeu Fabra and GSE)

  • McMahon, Michael

    (IMF-STI, University of Warwick, CEPR, CAGE (Warwick), CfM (LSE), and CAMA (ANU))

We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/258-2015_mcmahon.pdf
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Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 258.

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Date of creation: 2015
Handle: RePEc:cge:wacage:258
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/

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