Dr Tho Pham “The Voice of Monetary Policy“

News | Posted on Thursday 23 March 2023

A new article written by Dr. Tho Pham and co-authors has been published in the American Economic Review.

The study by Tho and co-authors (Prof. Yuriy Gorodnichenko of University of California, Berkeley and Prof. Sasha Talavera of University of Birmingham) discusses the vocal feature of the Federal Open Market Committee (FOMC) communication and explores its impacts on the financial markets.

Tho provided us with a short summary of her paper.

In recent years, central bank communication has become an increasingly important policy tool. As such, central bankers have adopted different ways of communicating with the public including press releases, press conferences, and social media. Existing evidence suggests that the verbal aspect of communication, e.g., the content and the text sentiment, could have significant effects on inflation expectations, stock prices, and bond prices. Yet, little is known about the effectiveness of central banker’s non-verbal communication.

In this study, we develop a novel deep learning model to measure the tone of voice of the Federal Reserve (Fed) Chairs during the FOMC press conferences over the 2011 – June 2019 period and examine whether emotions in voice tone can move financial markets. We find strong responses of share prices, volatility, and other financial variables to vocal cues from the Fed Chairs. Hence, how policy messages are communicated can move the financial market. In other words, not only what central bankers say but also how it is said matters.

Full article: The Voice of Monetary Policy. American Economic Review, 113(2), pp.548-584.