Deconstructing the Fed’s decisions: analysis of the factors influencing monetary policy in the US

Łukasz Below
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Łukasz Below: Warsaw School of Economics.

Bank i Kredyt, 2024, vol. 55, issue 5, 623-660

Abstract: While the impact of monetary policy on the economy is a well-researched topic, the influence of economic conditions on the monetary policy decision-making process attracts scant attention in the existing literature. In theory, monetary policy goals are well-established by legal acts, but the decision- -making process conducted by the policymakers is impacted by many factors related to the real economy and financial markets. In this paper, I deconstruct the process executed by the Federal Open Market Committee by estimating a factor model on the basis of data extracted from the FOMC minutes by means of text mining. I therefore find that variables connected with financial markets, housing, and investment, as well as the global economy may cause a significant divergence of interest rates from the policy rule, as constructed on the official monetary policy goals.

Keywords: monetary policy; text mining; Federal Open Market Committee; monetary policy rule (search for similar items in EconPapers)
JEL-codes: D78 E52 E58 E61 (search for similar items in EconPapers)
Date: 2024
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