Title page
Contents
Abstract 2
I. Introduction 4
II. Measurement of Tonality in Greenbook Text 9
A. Measuring Tonality 9
B. Measuring Baker-Bloom-Davis style Uncertainty in Greenbooks 14
C. Relation of Tonality to Concurrent Greenbook Point Forecasts 15
III. Greenbook Tonality as an Economic Indicator 18
IV. Deeper Dive into Predictive Power of Tonality 21
A. Sticky Point Forecasts 21
B. Tonality as an Indicator of Unbalanced Risks to Forecast 22
V. The Relevance of Tonality to the Public 24
A. Greenbook Tonality and Blue Chip Forecasts 24
B. Tonality as a Predictor of Monetary Policy 26
C. Tonality as a Predictor of Stock Returns 27
D. Is Greenbook Tonality Communicated to the Public? 31
VI/VII. Summary, Interpretation, and Conclusions 32
VII/VIII. References 33
Appendix A: Text analysis 47
Appendix B: Data 50
Appendix C: Structural break in the relationship between Tonality and Greenbook forecasts 53
Table 1. Pearson Correlation of Text Tonality with Greenbook point forecast variables 37
Table 2. Pearson Correlations among Greenbook forecast variables 37
Table 3. Greenbook Text Tonality and the Dual Mandate 37
Table 4. Regressions Predicting Cumulative GDP Growth 38
Table 5. Regressions Predicting Unemployment Change 39
Table 6. Regressions Predicting Cumulative Inflation Growth 40
Table 7. Forecast Regressions with Additional Variables 41
Table 8a. Quantile Regressions Predicting GDP Forecast Errors 42
Table 8b. Quantile Regressions Predicting Unemployment Forecast Errors 42
Table 9. Regressions Predicting Bluechip 4-Qtr Forecast Errors 43
Table 10. Quantile Regressions Predicting 4-Qtr Bluechip Errors: 1978-2009 44
Table 11. Regressions Predicting Bluechip Fed Funds Errors: 1986-2009 45
Table 12. Regressions Predicting Excess S&P 500 Returns over 3-,6-,12- Months: 1970-2009 46
Table 13. Quantile Regressions Predicting Excess S&P 500 3-, 6- and 12- Month Returns: 1970-2009 46
Figure 1. Total words in the Greenbook 11
Figure 2. Proportion of Positive and Negative Words in the Greenbook 12
Figure 3. Greenbook Tonality plotted over time 13
Figure 4. Greenbook Tonality and trend plotted over time 14
Figure 5. Greenbook Uncertainty plotted over time 15
Figure 6. Minutes versus Greenbook Trend Tonality 32
Figure A1. Word cloud for fifty most positive words in the Greenbook 49
Figure A2. Word cloud for fifty most negative words in the Greenbook 49
Figure C1. Number of breakpoints and model improvement 53
Figure C2. Chow tests for structural break in Tonality 54