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Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements

Author

Listed:
  • Taeyoung Doh
  • Dongho Song
  • Shu-Kuei Yang

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 pretrained 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.

Suggested Citation

  • Taeyoung Doh & Dongho Song & Shu-Kuei Yang, 2026. "Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(3), pages 379-412, July.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:3:p:379-412
    DOI: 10.1257/mac.20220312
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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