Do Federal Reserve communications help predict federal funds target rate decisions?

摘要

We explain federal funds target rate decisions using macroeconomic variables and Feder Reserve communication indicators. Econometrically, we employ an ordered probit mod of a Taylor rule to predict 75 target rate decisions between 1998 and 2006. We find, fir; that our communication indicators significantly explain target rate decisions and impro> explanatory power in and out of sample. Second, speeches by members of the Board Governors and regional presidents have a statistically significant and equal-sized effec whereas the less-frequent monetary policy reports and congressional hearings are insigni icant. Third, our findings are robust to variations in the specification, including changes the communication strategy. Finally, our communication indicator based on Feder Reserve speeches performs better in explaining target rate decisions than do newswi reports of Fed communications.