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Open Access Publications from the University of California

Understanding Quantitative and Qualitative Monetary Policy Releases

  • Author(s): Tadle, Raul Cruz
  • Advisor(s): Hutchison, Michael M.
  • et al.
Creative Commons Attribution 4.0 International Public License

My dissertation examines how asset prices move based on information in Federal Open Market Committee (FOMC) meeting minutes. I create a quantitative measure of the information in these documents using the Dictionary Method of Automated Content Analysis. In evaluating the document information, my dissertation accounts for the content of previously released policy statements as well as the persistence of the wording in FOMC meeting documents in order to extract the unexpected information in the minutes. My dissertation then identifies the intraday asset price reactions to these unanticipated information. I mainly focus on the time period beginning on the FOMC's date-based forward guidance, the period during which the FOMC commits to maintaining the same policy up to a specified date. I find that during this time, surprisingly more optimistic economic discussions caused statistically significant increases in U.S. equity and housing indices.

My dissertation also examines the forecasts that are important to FOMC policy decisions. My work evaluates whether these decisions depend mainly on Federal Reserve Board of Governors Staff forecasts, stored in the document called the Greenbook, or if they are affected by additional information that resembles Survey of Professional Forecasters (SPF) data, a proxy for publicly available forecasts. I also use the Dictionary Method to decipher the implied monetary policy tilt of the FOMC meeting statements. Utilizing the Leaps-and-Bounds algorithm, I find that when making policy decisions, the FOMC accounts for information similar to the Greenbook nowcast of unemployment and the four-quarter average SPF-forecast for inflation. In contrast, I find that the economic information highlighted in meeting statements are consistent with Greenbook forecasts.

My dissertation also includes research work co-authored with Mario Gonzalez from the Central Bank of Chile. We evaluate the impact of another set of central bank releases, specifically those of the Central Bank of Chile, and examine how this set of text affects Chilean financial markets. Our work demonstrates that central bank policy documents of emerging markets, particularly of Chile, not only signal future monetary policies, but can have significant impact on the country's financial markets.

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