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Financial stability and the Fed : Evidence from congressional hearings
Author(s) -
Wischnewsky Arina,
Jansen DavidJan,
Neuenkirch Matthias
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12977
Subject(s) - taylor rule , economics , monetary policy , explanatory power , financial stability , great recession , recession , preference , stability (learning theory) , predictive power , power (physics) , monetary economics , finance , macroeconomics , keynesian economics , central bank , financial system , microeconomics , philosophy , physics , epistemology , quantum mechanics , machine learning , computer science
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.