Words Speak as Loudly as Actions: Central Bank Communication and the Response of Equity Prices to Macroeconomic Announcements
Benjamin Gardner,
Chiara Scotti and
Clara Vega
No 2021-074, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)
Abstract:
While the literature has already widely documented the effects of macroeconomic news announcements on asset prices, as well as their asymmetric impact during good and bad times, we focus on the reaction to news based on the description of the state of the economy as painted by the Federal Open Market Committee (FOMC) statements. We develop a novel FOMC sentiment index using textual analysis techniques, and find that news has a bigger (smaller) effect on equity prices during bad (good) times as described by the FOMC sentiment index. Our analysis suggests that the FOMC sentiment index offers a reading on current and future macroeconomic conditions that will affect the probability of a change in interest rates, and the reaction of equity prices to news depends on the FOMC sentiment index which is one of the best predictors of this probability.
Keywords: Monetary policy; Public information; Probability of a recession; Price discovery (search for similar items in EconPapers)
JEL-codes: C53 D83 E27 E37 E44 E47 E50 G10 (search for similar items in EconPapers)
Pages: 67 p.
Date: 2021-11-18
New Economics Papers: this item is included in nep-big, nep-cba, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)
Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2021074pap.pdf (application/pdf)
Related works:
Journal Article: Words speak as loudly as actions: Central bank communication and the response of equity prices to macroeconomic announcements (2022) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-74
DOI: 10.17016/FEDS.2021.074
Access Statistics for this paper
More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().