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Shocking language: understanding the macroeconomic effects of central bank communication

Listed author(s):
  • Stephen Hansen
  • Michael McMahon

We explore how the multi-dimensional aspects of information released by the FOMC have 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: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2016-01/4_2016_hansen_mcmahon_0.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2016-04.

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Length: 42 pages
Date of creation: Jan 2016
Handle: RePEc:een:camaaa:2016-04
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