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Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements


Abstract: We propose a text-based measure of monetary policy stance that models FOMC statements as convex combinations of dovish and hawkish alternatives, providing a tractable representation of the Committee's position along the policy spectrum. Leveraging staff-drafted alternative statements, we fine-tune a pre-trained language model to capture both quantitative precision and semantic tone. Stance is defined as the product of tone and novelty, and decomposed into expected and surprise components using high-frequency financial data. Surprises arise from shifts in tone relative to expectations or from statement novelty. Our framework enables counterfactuals showing how alternative communication could have moved markets.

JEL Classification: E30; E40; E50; G12;

https://doi.org/10.18651/RWP2020-14

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Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2025-06-12

Number: RWP 20-14

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