Mind Your Language: Market Responses to Central Bank Speeches

Maximilian Ahrens (), Deniz Erdemlioglu, Michael McMahon, Christopher Neely and Xiye Yang

No 2023-013, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Post-meeting central bank communication often moves markets, but researchers have paid less attention to the more frequent central bankers’ speeches. We create a novel dataset of U.S. Federal Reserve speeches and develop supervised multimodal natural language processing methods to identify how monetary policy news affect bond and stock market volatility and tail risk through implied changes in forecasts of GDP, inflation, and unemployment. We find that forecast revisions derived from FOMC member speeches can help explain volatility and tail risk in both equity and bond markets. Speeches from Chairs tend to produce larger forecast revisions and unconditionally raise volatility and tail risk. There is some evidence that a speaker’s monetary policy views, i.e, hawkishness vs. dovishness, may affect the impact of implied forecast revisions after conditioning on GDP growth. We show that central bank communication may calm markets, depending on the signals conveyed.

Keywords: central bank communication; multimodal machine learning; natural language processing; speech analysis; high-frequency data; volatility; tail risk (search for similar items in EconPapers)
JEL-codes: C45 C53 E52 G12 G14 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2023-05-31, Revised 2024-09-28
New Economics Papers: this item is included in nep-ban, nep-big, nep-cba, nep-cmp, nep-mon and nep-rmg
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Citations: View citations in EconPapers (5)

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Working Paper: Mind Your Language: Market Responses to Central Bank Speeches (2023)
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DOI: 10.20955/wp.2023.013

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