Ferrara and De Roux truly pose the query extra tactfully, of their paper (Capturing worldwide influences in U.S. financial coverage by means of a NLP method) introduced on the ISF conferences right here in Charlottesville. They appear to see if within the FOMC minutes, worldwide financial points are talked about in a method that, when transformed to an index, exhibits up as statistically important in a Taylor equation, and supply the reply “sure”.
First the “Worldwide Consideration Index”:
Subsequent, the regression of fed funds fee on lag, nominal rate of interest, PCE hole and output hole, augmented with the Worldwide Consideration Index.
The index is normalized to 0 to 1, so a 0.10 enhance within the index leads to a 80 bps discount in fed funds fee relative to what it in any other case can be. For context, the rise within the index through the enlargement of the Russian invasion of Ukraine was about 0.10.
From the summary:
Our outcomes present that when there’s a deal with worldwide matters inside the FOMC,
the Fed’s financial coverage usually tends to be extra accommodative than anticipated by a typical Taylor rule. This result’s strong to numerous options that features a time-varying impartial rate of interest or a shadow central financial institution rate of interest.