Financial stability and the Fed: Evidence from congressional hearings

Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch

doi:10.1111/ecin.12977

Financial stability and the Fed: Evidence from congressional hearings

Arina Wischnewsky
, David-Jan Jansen
, Matthias Neuenkirch^*

^*Corresponding author for this work

Finance

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

This article retraces how financial stability considerations interacted with US monetary policy before and during the Great Recession. Using text-mining techniques, this article innovates by constructing indicators for financial stability sentiment expressed during testimonies of five Federal Reserve Chairs. Including these text-based measures adds explanatory power to Taylor-rule models. Negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylor-rule factors, even during 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.

Original language	English
Pages (from-to)	1192-1214
Number of pages	23
Journal	Economic Inquiry
Volume	59
Issue number	3
Early online date	24 Feb 2021
DOIs	https://doi.org/10.1111/ecin.12977
Publication status	Published - Jul 2021

Funding

This article benefitted from feedback by two anonymous referees, Hamza Bennani, Carel van den Berg, Alan Blinder, Ricardo Correa, Michael Ehrmann, Sylvester Eijffinger, William English, Rui Esteves, Gabriele Galati, Lucas Hafemann, Nora Lamersdorf, Jason Lennard, Trineke Palm, Jonathan Rose, Katrijn Siderius, Pierre Siklos, Alan Taylor, Peter Tillmann, Dietrich Vollrath (the Editor), and Sweder van Wijnbergen. We also received useful comments from participants at many workshops and conferences. Errors, omissions, and views remain our own responsibility. Views expressed in this article do not necessarily coincide with those of de Nederlandsche Bank or the Eurosystem.

Funders
Sweder van Wijnbergen

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

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10.1111/ecin.12977

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Financial stability and the Fed: Evidence from congressional hearings

Abstract

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UN SDGs

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