Financial stability and the Fed: evidence from congressional hearings

Arina Wischnewsky, David-Jan Jansen and Matthias Neuenkirch

No 7657, CESifo Working Paper Series from CESifo

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.

Keywords: monetary policy; financial stability; Taylor rule; text mining (search for similar items in EconPapers)
JEL-codes: E52 E58 N12 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-big, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Journal Article: Financial stability and the Fed: Evidence from congressional hearings (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7657

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