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This paper describes a new data set of the forecasts of output growth, inflation, and unemployment prepared by individual members of the Federal Open Market Committee. The paper discusses the scope of the data set, possibilities f...
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This paper describes a new data set of the forecasts of output growth, inflation, and unemployment prepared by individual members of the Federal Open Market Committee. The paper discusses the scope of the data set, possibilities for extending it, and some potential uses. It offers a preliminary examination of some of the cross-sectional features of the data.
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The authors investigate the impact of language complexity on volatility using a novel measure based on the information-processing hypothesis of return volatility. The empirical analysis focuses on whether and how the executives ' ...
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The authors investigate the impact of language complexity on volatility using a novel measure based on the information-processing hypothesis of return volatility. The empirical analysis focuses on whether and how the executives ' use of complex language, measured by several linguistic attributes, contributes to the intraday return volatility following the earnings conference calls, that is, how the difficulty of incorporating more complex information into assets prices leads to increased volatility. Based on textual analysis of 98,955 quarterly earnings calls from June 2008 to December 2019, they find that the more complex the language used by executives during earnings conferences is, the higher the idiosyncratic volatility is immediately after the earnings calls. This impact of language complexity on volatility persists, in some cases, up to five days following the earnings call, even after controlling for earnings surprise and other firm characteristics, such as institutional ownership and short interest. The authors also find that the longer the time between the earnings release (announcement) and the start of the earnings conference call, the lower the idiosyncratic volatility after controlling for language complexity as well as the earnings surprise.
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Forecasting is a daunting challenge for business economists and policymakers, often made more dif ficult by pervasive uncertainty. One such uncertainty is the reaction of policymakers to major shifts in the economy. We explore the...
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Forecasting is a daunting challenge for business economists and policymakers, often made more dif ficult by pervasive uncertainty. One such uncertainty is the reaction of policymakers to major shifts in the economy. We explore the process by which the Federal Reserve Open Market Committee (FOMC) came to recognize and react to the productivity acceleration of the 1990s. Initial impressions were formed importantly by anecdotal evidence. Then, FOMC members-and chiefly Federal Reserve Board Chairman Alan Greenspan-came to mistrust the data and the forecasts. Eventually, revisions to published data confirmed initial impressions. Our main conclusion is that the productivity-driven positive supply side shocks of the 1990s were initially viewed favorably. However, over time they came to be viewed as posing a threat to the economy, chiefly through unsustainable increases in aggregate demand growth that threatened to increase inflation pres sures. Perhaps nothing so complicates business planning and forecasting as policymakers who ini tially embrace an unanticipated shift and later come to abhor the same shift.
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This paper investigates options trading activity before Federal Open Market Committee (FOMC) announcements. We find evidence that informed traders use options to speculate on their private information for the upcoming FOMC announc...
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This paper investigates options trading activity before Federal Open Market Committee (FOMC) announcements. We find evidence that informed traders use options to speculate on their private information for the upcoming FOMC announcements. Specifically, abnormal trading volume of call options on S&P 500 index during the preannouncement window positively predicts postannouncement index returns, and this predictability mainly comes from near-the-money call options. Moreover, we further break down trading volume based on the direction of trades and show that buyer-initiated call option trading volume positively predicts postannouncement index returns. We find no evidence that investors use options to hedge postannouncement market uncertainty.
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We examine a new set of U.S. fiscal forecasts from the FOMC briefing books. These forecasts are precisely those that were presented to monetary policymakers, and include frequently-updated estimates covering six complete business ...
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We examine a new set of U.S. fiscal forecasts from the FOMC briefing books. These forecasts are precisely those that were presented to monetary policymakers, and include frequently-updated estimates covering six complete business cycles and several fiscal-policy regimes. We detail the performances of forecast federal expenditures, revenues, surpluses, and structural surpluses in terms of their accuracy, bias, and efficiency. We find that forecast errors can be large economically, even at relatively short forecast horizons. While economic activity became less volatile after 1990, fiscal policy became harder to forecast. Finally, cyclically-adjusted deficit forecasts appear to be overoptimistic around both peaks and troughs of the business cycle, suggesting that fiscal policy is counter-cyclical in downturns and pro-cyclical in the early stages of recoveries. (C) 2019 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.
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This paper sheds some new light on the determinants of FOMC members' monetary policy preferences. For that purpose, we use a new dataset of macroeconomic indicators for the Fed districts, as well as preferences revealed by FOMC me...
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This paper sheds some new light on the determinants of FOMC members' monetary policy preferences. For that purpose, we use a new dataset of macroeconomic indicators for the Fed districts, as well as preferences revealed by FOMC members in the Transcripts, to compute a desired interest rate for each individual member. First, we find that FOMC members react to the regional unemployment rate. Second, individuals holding a Master or Bachelor degree, and issued from either the central bank, or from the private or public sector have a higher propensity to disagree on the dovish side, while women tend to disagree on the hawkish side. These findings provide further insights for central bank watchers about the upcoming policy decisions that are likely to be implemented by the FOMC, following the composition of its committee and the evolution of regional cycles.
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Does policymakers' choice of words matter? We assess empirically whether the tone of FOMC statements contains useful information for financial market participants and explore the nature of the information conveyed. We quantify cen...
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Does policymakers' choice of words matter? We assess empirically whether the tone of FOMC statements contains useful information for financial market participants and explore the nature of the information conveyed. We quantify central bank tone using computational linguistics. We find that the tone of FOMC statements explains monetary surprises beyond FOMC information released on policy announcement days such as policymakers' forecasts and votes. We also find that the FOMC tone matters more around monetary cycle turning points. We show that the tone of policy statements also helps predict future policy decisions. Our findings suggest that the central bank tone may be one of the vehicles allowing for some information transfer to the public. (C) 2021 Elsevier B.V. All rights reserved.
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This article uses transcript data to examine determinants of inconsistent voting behaviour in the Federal Open Market Committee (FOMC) in the period 1989-2008. Inconsistent voting behaviour occurs if a member shows disagreement on...
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This article uses transcript data to examine determinants of inconsistent voting behaviour in the Federal Open Market Committee (FOMC) in the period 1989-2008. Inconsistent voting behaviour occurs if a member shows disagreement on the interest rate proposed by the chairman in the policy go-around, but this member agrees in the formal vote. Results show that after the 1993's increase in central bank transparency, the probability of casting inconsistent votes decreases significantly, on average by 3.3 percentage points. FOMC members with longer tenure on the committee have a lower probability of casting inconsistent votes. Further results suggest that board members and bank presidents differ significantly, with bank presidents casting inconsistent votes more often than board members do. This relation holds true for gender as well, with female members casting more inconsistent votes than males. In addition, political aspects and career backgrounds also contribute to explaining inconsistent voting behaviour in the FOMC. Conditional effects reveal that after the change in transparency, differences between board members and bank presidents remain, whereas differences between male and female members have diminished. What is more, FOMC members with a career in the government sector have been strongly affected by the regime shift in transparency.
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The Federal Open Market Committee (FOMC) meetings are among the most important economic events. We propose a novel method to recover the FOMC risk premium and drift sizes. Empirically, we find that for the 192 meetings from 1996 t...
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The Federal Open Market Committee (FOMC) meetings are among the most important economic events. We propose a novel method to recover the FOMC risk premium and drift sizes. Empirically, we find that for the 192 meetings from 1996 to 2019, the FOMC risk premium varies across meetings, from 1 to 326 basis points (bps) with an average of 45 bps. We obtain an out-of-sample R 2 of 7.51% when using the recovered FOMC premium to predict the meeting returns around the announcement. The average predicted upward drift size is 101 bps, and the average predicted downward drift size is 129 bps, matching well with the realized ones. (C)& nbsp;2022 Elsevier B.V. All rights reserved.
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Federal Open Market Committee (FOMC) meeting days provide a natural laboratory for exploring the effects of policy uncertainty and learning on exchange rate determination. A reasonable hypothesis is that the meeting outcomes are p...
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Federal Open Market Committee (FOMC) meeting days provide a natural laboratory for exploring the effects of policy uncertainty and learning on exchange rate determination. A reasonable hypothesis is that the meeting outcomes are price-relevant public information associated with a switch to an "informed-trading state." Evidence is provided by intradaily exchange rates for 10 FOMC meetings. A particularly interesting finding is that the informed-trading regime tends to emerge during the time that the FOMC meets. An extensive search of public news indicates that the informed trading cannot be explained as the response to public information.
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