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Working Paper
Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements
We apply a natural language processing algorithm to FOMC statements to construct a new measure of monetary policy stance, including the tone and novelty of a policy statement. We exploit cross-sectional variations across alternative FOMC statements to identify the tone (for example, dovish or hawkish), and contrast the current and previous FOMC statements released after Committee meetings to identify the novelty of the announcement. We then use high-frequency bond prices to compute the surprise component of the monetary policy stance. Our text-based estimates of monetary policy surprises are ...
Working Paper
Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements
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 ...
Working Paper
Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements*
We present a text-based metric for monetary policy stance using official and alternative Federal Open Market Committee statements. Our advanced natural language processing, with numeric property detection, jointly evaluates quantitative decisions like interest rates and qualitative explanations for these choices from texts. Monetary policy stance is decomposed into expected stance and surprise components by leveraging high-frequency bond futures data around FOMC announcements. We examine responses of stock returns to counterfactual (more dovish or hawkish) policy surprises through alternative ...