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Does Anyone Listen when Politicians Talk? The Effect of Political Commentaries on Policy Rate Decisions and Expectations

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This paper investigates the effects of political commentaries on policy rate decisions and policy expectations in the United States and the euro area. The results suggest that political commentaries do influence policy rate expectations in both regions, even after controlling for macroeconomic releases and immediate interest rate expectations. The findings regarding the policy reaction functions reveal that market expectations are mostly rational. There is no evidence that the Federal Reserve responds to political commentaries that suggest rate hikes or easings. Meanwhile, the European Central Bank seems to have steered its policy in line with political commentaries that suggested further easings during the pre-crisis period, consistent with market expectations.

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  • Selva Demiralp & Sharmila King & Chiara Scotti, 2016. "Does Anyone Listen when Politicians Talk? The Effect of Political Commentaries on Policy Rate Decisions and Expectations," Finance and Economics Discussion Series 2016-058, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2016-58
    DOI: 10.17016/FEDS.2016.058
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    1. Alan S. Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2024. "Central Bank Communication with the General Public: Promise or False Hope?," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 425-457, June.
    2. Gardner, Ben & Scotti, Chiara & Vega, Clara, 2022. "Words speak as loudly as actions: Central bank communication and the response of equity prices to macroeconomic announcements," Journal of Econometrics, Elsevier, vol. 231(2), pages 387-409.
    3. Cem Cakmakli & Selva Demiralp, 2020. "A Dynamic Evaluation of Central Bank Credibility," Koç University-TUSIAD Economic Research Forum Working Papers 2015, Koc University-TUSIAD Economic Research Forum.
    4. Bennett Schmanski & Chiara Scotti & Clara Vega, 2023. "Fed Communication, News, Twitter, and Echo Chambers," Finance and Economics Discussion Series 2023-036, Board of Governors of the Federal Reserve System (U.S.).
    5. Benjamín García & Arsenios Skaperdas, 2024. "Central Bank Independence at Low Interest Rates," Working Papers Central Bank of Chile 1003, Central Bank of Chile.
    6. Peter Tillmann, 2020. "Trump, Twitter, And Treasuries," Contemporary Economic Policy, Western Economic Association International, vol. 38(3), pages 403-408, July.
    7. Peter Tillmann, 2019. "Trump Pressuring the Fed," MAGKS Papers on Economics 201920, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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