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The Financial Instability - Monetary Policy Nexus: Evidence from the FOMC Minutes

Author

Listed:
  • Dimitrios Kanelis
  • Lars H. Kranzmann
  • Pierre L. Siklos

Abstract

We analyze how financial stability considerations expressed in Federal Open Market Committee (FOMC) meetings are associated with U.S. monetary policy implementation and communication. Utilizing natural language processing and language modeling to analyze FOMC minutes, we measure the prevalence and sentiment of mandate-related and financial stability-related discussions. Financial stability discussions increase after the Global Financial Crisis, especially during tightening cycles and the COVID-19 pandemic. Outside the zero lower bound (ZLB), greater attention to financial stability is associated with lower policy rates while during the ZLB, a tighter unconventional monetary policy stance is observed. Financial stability discussions are not significantly associated with sentiment in subsequent press conferences. Methodologically, we introduce a labeled dataset and apply explainable AI to improve the transparency of our text analysis.

Suggested Citation

  • Dimitrios Kanelis & Lars H. Kranzmann & Pierre L. Siklos, 2025. "The Financial Instability - Monetary Policy Nexus: Evidence from the FOMC Minutes," CAMA Working Papers 2025-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised Sep 2026.
    • Handle: RePEc:een:camaaa:2025-25
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    File URL: https://crawford.anu.edu.au/sites/default/files/2026-10/25_2025_Kanelis_Kranzmann_Siklos_Revised_September2026_0.pdf
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    File URL: https://crawford.anu.edu.au/sites/default/files/2026-10/25a_2025_Kanelis_Kranzmann_Siklos_Original_April2025.pdf
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    Cited by:

    1. Bernd Hayo & Johannes Zahner, 2025. "Fiscal Talks: Parliamentary Debates and Government Expenditure," MAGKS Papers on Economics 202521, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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