Crafting Consensus

2020 ◽  
Author(s):  
Nicole Baerg
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Economic Performance ◽  
Inflation Expectations ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Positive Effects ◽  
Policy Statements ◽  
Using Data ◽  
Central Bankers

In the early 2000s, the US monetary policy committee, as well as other central banks around the world, began using “forward guidance,” or changes in their statement language, to signal policy changes. Underlying this shift toward clearer communication was the idea that more comprehensible monetary policy would lead to better economic performance and lower inflation. The first three chapters of this book argue that, rather than being a lofty goal set by altruistically motivated policy makers, transparency depends on the configuration of committee members’ preferences. Monetary policy committees that have central bankers with opposing preferences are argued to communicate more precisely compared to either a single decision maker or central bankers with more similar preferences. Precise communication is then shown to have positive effects by lowering inflation. Shifting focus and using data from the Federal Open Market Committee (FOMC), chapter 4 presents evidence that committees with opposing preferences use a lower share of uncertainty words in policy statements and make more numerous changes to public announcements. Chapter 5 shows that households in Germany change their inflation expectations when given more precise central bank information. And chapter 6 shows that the level of precision in inflation-related news articles is negatively related to inflation in a sample of countries from Latin America. In conclusion, this book offers a new way of thinking about central bank committees and transparency. It finds that appointing a more policy-diverse central bank committee can encourage intercommittee governance and accountability as well as better economic performance.

Central Bank Communications

2019 ◽  
pp. 262-286
Author(s):  
J. Scott Davis ◽  
Mark A. Wynne
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Open Market ◽  
Monetary Policy Shocks ◽  
Federal Open Market Committee ◽  
Quarter Century ◽  
The Past ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Daily Time

Over the past twenty-five years, central bank communications have undergone a major revolution. Central banks that previously shrouded themselves in mystery now embrace social media to get their message out to the widest audience. The volume of information about monetary policy that the Federal Open Market Committee (FOMC) now releases dwarfs what it was releasing a quarter century ago. This chapter focuses on just one channel of FOMC communications, the postmeeting statement. It documents how this has become more detailed over time. Then daily financial-market data are used to estimate a daily time series of US monetary policy shocks. These shocks on Fed statement release days have gotten larger as the statement has gotten longer and more detailed, and the chapter shows that the length and complexity of the statement have a direct effect on the size of the monetary policy shock following a Fed decision.

Central Bank Committees and Political Communication

2020 ◽  
pp. 75-100
Author(s):  
Nicole Baerg
Keyword(s):  
Central Bank ◽  
Political Communication ◽  
Policy Statement ◽  
Open Market ◽  
Supportive Evidence ◽  
Federal Open Market Committee ◽  
Textual Information ◽  
Learning Techniques ◽  
Official Policy ◽  
Policy Statements

Using archival, textual information from Federal Open Market Committee (FOMC) transcript data as well as FOMC policy statements, chapter 4 demonstrates that when the chair and median member have opposing inflation preferences, the FOMC communicates with greater precision than when the chair and median member have aligned inflation preferences. The author finds this is true, however, when computing the median members able to cast a public vote. The chapter also provides supportive evidence that when committee members are more dissimilar, the number of textual changes to the policy announcement is higher than otherwise. Theoretically, the chapter shows that a combination of members’ preferences and voting rights matter for the level of uncertainty words used in the official policy statement. Methodologically, the chapter demonstrates the innovative use of supervised and unsupervised learning techniques to construct quantitative measures from text as data, applied to central bank committees.

scholarly journals A textual Taylor rule: estimating central bank preferences combining topic and scaling methods

2018 ◽  
Vol 8 (1) ◽  
pp. 106-122 ◽  
Author(s):  
Nicole Baerg ◽  
Will Lowe
Keyword(s):  
Central Bank ◽  
Text Analysis ◽  
Voting Behavior ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Federal Reserve Bank ◽  
Reserve Bank ◽  
The Us ◽  
Scaling Methods ◽  
Central Bankers

AbstractScholars often use voting data to estimate central bankers’ policy preferences but consensus voting is commonplace. To get around this, we combine topic-based text analysis and scaling methods to generate theoretically motivated comparative measures of central bank preferences on the US Federal Open Market Committee (FOMC) leading up to the financial crisis in a way that does not depend on voting behavior. We apply these measures to a number of applications in the literature. For example, we find that FOMC members that are Federal Reserve Bank Presidents from districts experiencing higher unemployment are also more likely to emphasize unemployment in their speech. We also confirm that committee members on schedule to vote are more likely to express consensus opinion than their off schedule voting counterparts.

Crafting Consensus

2020 ◽  
pp. 1-18
Author(s):  
Nicole Baerg
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Information Aggregation ◽  
Policy Statement ◽  
Single Individual ◽  
Open Market ◽  
Federal Open Market Committee ◽  
Policy Makers ◽  
Monetary Policy Committee ◽  
Central Bankers

This chapter introduces central bankers as “wordsmiths,” skilled users of words, who work together to construct and edit a monetary policy statement with an intention to drive the economy by shaping the public’s beliefs about the future. The chapter starts off showing that central bankers can be both relatively vague and relatively precise with the language that they use. Baerg highlights previous explanations on the benefits of delegating monetary policy to a monetary policy committee rather than to a single individual. Known benefits include better information aggregation and problem-solving. The author introduces the argument that monetary policy committees that have diverse policy preferences are more likely to be precise and illustrates, using examples from Federal Open Market Committee (FOMC) transcript data, how policy makers bargain over the policy statement in ways similar to how they negotiate changes in interest rates. The chapter concludes with a brief overview of the structure of the manuscript.

scholarly journals One Central Bank to Rule Them All*

2019 ◽  
Author(s):  
Francesca Brusa ◽  
Pavel Savor ◽  
Mungo Wilson
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Central Banks ◽  
Comparable Result ◽  
Global Markets ◽  
Open Market ◽  
Federal Open Market Committee ◽  
The Difference ◽  
Global Stock Markets ◽  
Global Stock

Abstract While global stock markets enjoy high returns on days surrounding Federal Open Market Committee (FOMC) meetings, there is no comparable result for other central banks either internationally or, more surprisingly, domestically. Neither announcement surprises nor currency moves drive these findings, which hold even for stocks with a domestic focus. The difference in announcement premia is not explained by economy size, exposure to multinationals, or policy activism. We conclude that the Fed exerts a unique impact on global equities. Consistent with this hypothesis, uncertainty drops across global markets following FOMC announcements but not those of other central banks. Furthermore, the Fed is generally the leader among central banks in setting monetary policy.

scholarly journals Does Monetary Policy Credibility Help in Anchoring Inflation Expectations? Evidence from Six Inflation Targeting Emerging Economies

2021 ◽  
Vol 10 (1) ◽  
pp. 93-111
Author(s):  
Aslı Güler
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Emerging Economies ◽  
Inflation Targeting ◽  
Emerging Market ◽  
Inflation Expectations ◽  
Inflation Target ◽  
The Public ◽  
Inflation Expectation ◽  
Using Data

Abstract Most emerging market central banks have adopted inflation targeting as their monetary policy system. The heart of inflation targeting system is inflation expectations. The success of a central bank in achieving targets depends on to the extent to which inflation expectations are formed by the announced targets. As the credibility of the central bank increases, its ability to affect the public expectation also increases. The public adjusts its inflation expectations based on announced inflation target only in case of that they believe that the central bank has the sufficiency to reach the inflation target. Credibility enables expectation to be formed in a forward-looking way by weakening its connection with the past. This study aims to contribute to the literature concerning the effects of credibility on monetary policy. For this purpose, using data of six emerging inflation targeting economies (Turkey, Brazil, the Czech Republic, Chile, Poland, and South Africa), the empirical tests were carried out in order to understand the effect of the credibility on the behaviour of inflation expectation in emerging economies. The findings denote that credibility is quite relevant to reduce inflation expectations and contributes to the strength of inflation targets being an anchor for inflation expectations.

The Global Financial Crisis and Central Bank Speak

2014 ◽  
pp. 293-314 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
State Of The Economy ◽  
Policy Statements ◽  
Using Data ◽  
The Global Financial Crisis

Words are critical in how the public perceives the work of central banks and the quality of monetary policy. Press releases that accompany policy rate decisions and, where available, the minutes of central bank committee meetings, are focal points for the media in public discussions about the conduct of monetary policy. Using data from five countries, this chapter examines whether the language used by central banks has changed since the Global Financial Crisis (GFC) began. Briefly, the findings show that concerns about financial stability peaked just as the global financial crisis reached its zenith. However, concerns over uncertainty about the current and anticipated state of the economy have also risen over time. More generally, central bank speak became more aggressive throughout the crisis years. More conventional expressions about the current stance of monetary policy took a back seat to other concerns in central bank policy statements and minutes.

The Global Financial Crisis and Central Bank Speak

2014 ◽  
pp. 592-613
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Central Bank ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
State Of The Economy ◽  
Policy Statements ◽  
Using Data ◽  
The Global Financial Crisis

Words are critical in how the public perceives the work of central banks and the quality of monetary policy. Press releases that accompany policy rate decisions and, where available, the minutes of central bank committee meetings, are focal points for the media in public discussions about the conduct of monetary policy. Using data from five countries, this chapter examines whether the language used by central banks has changed since the Global Financial Crisis (GFC) began. Briefly, the findings show that concerns about financial stability peaked just as the global financial crisis reached its zenith. However, concerns over uncertainty about the current and anticipated state of the economy have also risen over time. More generally, central bank speak became more aggressive throughout the crisis years. More conventional expressions about the current stance of monetary policy took a back seat to other concerns in central bank policy statements and minutes.

scholarly journals The Effect of FOMC Votes on Financial Markets

2019 ◽  
Vol 101 (5) ◽  
pp. 921-932
Author(s):  
Carlos Madeira ◽  
João Madeira
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Open Market ◽  
Federal Open Market Committee ◽  
2008 Financial Crisis ◽  
Treasury Securities ◽  
Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

scholarly journals Can inflation forecast and monetary policy path be really useful? The case of the Czech Republic

Equilibrium ◽  
2015 ◽  
Vol 10 (3) ◽  
pp. 9 ◽  
Author(s):  
Magdalena Szyszko ◽  
Karolina Tura
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Qualitative Analysis ◽  
Central Bank ◽  
Quantitative Methods ◽  
Inflation Expectations ◽  
The Czech Republic ◽  
Inflation Forecasts ◽  
National Bank ◽  
Parametric Statistics

Producing and revealing inflation forecast is believed to be the best way of implementing a forward-looking monetary policy. The article focuses on inflation forecast targeting (IFT) at the Czech National Bank (CNB) in terms of its efficiency in shaping consumers’ inflation expectations. The goal of the study is to verify the accuracy of the inflation forecasts, and their influence on inflation expectations. The research is divided into four stages. At the first stage, central bank credibility is examined. At the second stage – accuracy of the inflation forecasts. The next step of the research covers a qualitative analysis of IFT implementation. Finally, the existence of the interdependences of inflation forecast, optimal policy paths and inflation expectations is analyzed. Credibility of the central bank, accuracy of the forecast and decision-making procedures focused on the forecast are the premises for the existence of relationship between forecasts and expectations. The research covers the period from July 2002 – till the end of 2013. Its methodology includes qualitative analysis of decision-making of the CNB, quantitative methods (Kia and Patron formula, MAE forecasts errors, quantification of expectations, non-parametric statistics). The results confirm the existence of interdependences between inflation forecasts and expectations of moderate strength. The preconditions of such interdependences are partially fulfilled. The research opens the field for cross-country comparisons and for quantification of IFT implementation.

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