Identifying Monetary Policy Shocks: A Natural Language Approach

S. Boragan Aruoba and Thomas Drechsel

No 32417, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a novel method for the identification of monetary policy shocks. By applying natural language processing techniques to documents that Federal Reserve staff prepare in advance of policy decisions, we capture the Fed's information set. Using machine learning techniques, we then predict changes in the target interest rate conditional on this information set and obtain a measure of monetary policy shocks as the residual. We show that the documents' text contains essential information about the economy which is not captured by numerical forecasts that the staff include in the same documents. The dynamic responses of macro variables to our monetary policy shocks are consistent with the theoretical consensus. Shocks constructed by only controlling for the staff forecasts imply responses of macro variables at odds with theory. We directly link these differences to the information that our procedure extracts from the text over and above information captured by the forecasts.

JEL-codes: C10 E31 E32 E52 E58 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-big, nep-cba, nep-cmp, nep-mac and nep-mon
Note: ME
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.nber.org/papers/w32417.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Identifying Monetary Policy Shocks: A Natural Language Approach (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:nbr:nberwo:32417

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32417
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().