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Communicating With Many Tongues: FOMC Communication, Media Coverage, And U.S. Financial Market Reaction

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Executive Summary

This paper studies the effects of Federal Reserve communications on U.S. financial market returns and volatility over the period from 1998 to 2006. The authors built a new data set that includes information on all Federal Reserve speeches, post-meeting statements, monetary policy reports, and testimony. They also analyze how media coverage affects market reaction. Their results can be summarized as follows: the impact on both returns and volatility is larger if the communication channel is more formal and if the speaker has a more prominent position in the Federal Reserve System.

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