A Textual Taylor Rule: Estimating Central Bank Preferences Combining Topic and Scaling Methods

Scholars often use voting data to estimate central bankers' policy preferences but consensus voting is commonplace. To get around this, we combine topic-based text analysis and scaling methods to generate theoretically motivated comparative measures of central bank preferences on the U.S. Federal Open Market Committee leading up to the financial crisis in a way that does not depend on voting behavior. We apply these measures to a number of applications in the literature. For example, we find that FOMC members that are Federal Reserve Bank Presidents from districts experiencing higher unemployment are also more likely to emphasize unemployment in their speech. We also confirm that committee members on schedule to vote are more likely to express consensus opinion than their off schedule voting counterparts and show that it is Dovish rather than Hawkish members who are more likely to want to amend the official monetary policy statement.