High-Frequency-Identification | Macro Paper Warehouse

Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements

Thu, 01 Jan 2026 00:00:00 +0000

This paper proposes a text-based measure of monetary policy stance by modelling FOMC post-meeting statements as convex combinations of the staff-drafted dovish (“alternative A”) and hawkish (“alternative C/D”) versions that accompany each meeting, providing a transparent and adaptive reference spectrum. The authors fine-tune the Universal Sentence Encoder—a pre-trained language model—using synthetic examples that mirror numerical information in policy actions, enabling the model to capture both semantic tone and quantitative precision. Stance is defined as the product of tone (alignment with the dovish/hawkish alternatives) and novelty (semantic shift from the previous statement), and is decomposed into expected and surprise components using intraday financial data. Surprises arise from shifts in tone relative to market expectations or from statement novelty. The resulting surprise measure aligns closely (correlations of 70–80%) with established high-frequency measures (Swanson 2017, Nakamura-Steinsson 2018, Bauer-Swanson 2023), and the framework enables counterfactual analysis of how alternative communication could have moved markets.

Summary of a forthcoming paper, AI-assisted and human-reviewed. See the linked original for the authoritative claims and full conditions.

In depth

Q1. What are the alternative FOMC statements and how are they used?

For each FOMC meeting, staff draft multiple versions of the policy statement—typically a more dovish “alternative A,” a baseline “alternative B,” and a more hawkish “alternative C” or “D”—and the paper uses these pre-structured alternatives as a reference spectrum against which to position the released statement. This institutional feature provides a transparent, adaptive measure of tone that evolves with the policy environment and internal deliberations, avoiding the rigidity of pre-fixed tone definitions. The released statement’s embedding in the language model space is compared to the dovish and hawkish alternatives to determine its location on the policy spectrum.

Q2. How is the policy stance measure constructed?

Stance is defined as the product of novelty and tone: novelty captures semantic shifts from previous statements, and tone reflects the alignment of the released statement with the dovish or hawkish alternatives; the observed stance reflects both the content of each position and the relative positioning of the Committee along the policy spectrum. A second, structural interpretation models the released statement as the outcome of internal deliberation—a weighted average of dovish and hawkish stances—linking textual variation to shifts in the internal balance of influence within the Committee.

Q3. How is the stance decomposed into expected and surprise components?

The decomposition into expected and surprise components uses intraday bond price movements to recover the market-expected dovish weight of the released statement, then defines the surprise as the deviation between the realized stance and the market-expected stance. Surprises arise from two sources: deviations in tone relative to expectations, and statement novelty. This framework shows that monetary policy surprises are not just about what the Fed did but also about how it communicated—capturing interpretable surprises that reveal shifts in the Committee’s internal balance.

Q4. How is the measure validated and what are its macroeconomic effects?

The surprise measure aligns closely with established high-frequency measures (correlations of 70–80% with Swanson 2017, Nakamura-Steinsson 2018, and Bauer-Swanson 2023); surprise tightenings reduce stock prices, raise short-term Treasury yields, dampen real activity and inflation, and raise credit risk premia. Local projection estimates corroborate that surprise contractionary shocks have the expected macroeconomic effects, providing a validation that the text-based measure captures meaningful monetary policy information beyond what is already priced in.

Q5. What counterfactual analysis does the framework enable?

The framework enables counterfactual analysis of how alternative FOMC communication could have moved markets—for example, estimating what asset price movements would have occurred had the Committee released the more dovish or hawkish alternative statement rather than the actual release. This counterfactual capability stems from the explicit modelling of stance as a position on a spectrum defined by the staff-drafted alternatives, so the market impact of any point on that spectrum can be estimated.

Key concepts

alternative FOMC statements : staff-drafted dovish (“alternative A”) and hawkish (“alternative C/D”) versions of the FOMC post-meeting statement prepared for each meeting; used as the reference spectrum for measuring the tone and position of the released statement. monetary policy stance : as defined in this paper, the product of tone (alignment with the dovish/hawkish alternatives) and novelty (semantic shift from the previous statement); captures both the direction and the information content of the released statement. tone : the alignment of a released FOMC statement with the dovish or hawkish alternative drafts in the Universal Sentence Encoder embedding space; reflects the direction of the Committee’s communication along the policy spectrum. novelty : the semantic distance of the released FOMC statement from the previous statement in the embedding space; captures how much new information or emphasis the statement introduces. Universal Sentence Encoder (USE) : the pre-trained language model applied by the paper; fine-tuned on synthetic examples that mirror numerical information in policy actions (e.g., rate-hike sizes) to capture both semantic tone and quantitative policy precision.

Balance-Sheet Policy and the Term Premium: High-Frequency Evidence

Mon, 01 Jan 0001 00:00:00 +0000

When a central bank shrinks its balance sheet, how much do long-term interest rates actually move — and through which channel? Using minute-by-minute market data around balance-sheet announcements, the authors estimate that much of the long-rate response works through the term premium rather than through changed expectations of future short rates. The result is an estimate for their 2009–2024 sample under their identifying assumptions — evidence consistent with a term-premium channel, not a universal constant.

Summary of a forthcoming paper, AI-assisted and human-reviewed. See the linked original for the authoritative claims and full conditions.

In depth

Q1. Does balance-sheet policy move long rates through the term premium or through expected short rates?

The paper estimates that a substantial share of the long-rate response operates through the term premium, with a smaller role for revised short-rate expectations — though it frames this as identification within their window, not a structural decomposition that holds in all regimes. This sits against a literature that has split the response into a signaling channel and a portfolio-balance channel; the contribution here is using intraday yields to isolate the announcement effect from contaminating macro news.

Q2. How is the effect identified, and why high-frequency?

By measuring yield changes in narrow windows around scheduled balance-sheet announcements, so that other macroeconomic news is unlikely to move rates within the window. The maintained assumption is that within a tight enough window, the announcement is the dominant shock — a standard high-frequency identification premise. The authors note the assumption is weaker around unscheduled communications, and restrict the main sample accordingly.

Q3. What does this imply for the pace of balance-sheet runoff?

If transmission runs through the term premium, the pace and predictability of runoff plausibly matter for long rates — but the paper presents this as suggestive, stopping short of a calibrated policy rule. The reading is that quantity and communication interact, consistent with prior work on announcement effects, rather than that runoff has a single mechanical effect on yields.

Key concepts

term premium: The extra return investors require for holding a long-term bond instead of rolling over short-term ones — here, the part of long rates not explained by expected future short rates.
balance-sheet policy: A central bank changing the size or composition of its asset holdings (expansion via purchases, runoff via “quantitative tightening”) as a policy tool distinct from setting the short-term rate.
high-frequency identification: Inferring a policy action’s effect from price moves in a very short window around the announcement, on the assumption that little else moves markets inside that window.

Patents, News, and Business Cycles

Mon, 01 Jan 0001 00:00:00 +0000

This paper constructs an instrumental variable for technology news shocks using patent applications, relaxing all identifying assumptions traditionally used in the news-shock literature. The IV is the component of patent applications orthogonal to pre-existing beliefs (Survey of Professional Forecasters), contemporaneous and lagged monetary and fiscal policy changes (narrative accounts), and own lags. The instrument recovers news shocks that have no effect on aggregate productivity in the short run but are a significant driver of its trend component. The shock prompts a broad-based expansion in anticipation of the future TFP increase—output, consumption, and investment all rise well before any material increase in TFP is recorded. Despite these positive conditional co-movements, the news shock accounts for only a modest share of macroeconomic fluctuations at business cycle frequencies. Financial markets price in news shocks on impact, while most macro aggregates respond with some delay. Previously circulated as “When Creativity Strikes: News Shocks and Business Cycle Fluctuations.”

Summary of a forthcoming paper, AI-assisted and human-reviewed. See the linked original for the authoritative claims and full conditions.

In depth

Q1. What is the identification strategy and why does it relax traditional assumptions?

The paper constructs an IV for technology news shocks as the component of patent applications orthogonal to pre-existing beliefs (SPF), narrative accounts of monetary and fiscal policy, and own lags—the sole identifying assumption is that no structural disturbance other than contemporaneous technology news affects the U.S. economy through this IV. Traditional identification requires combining zero restrictions on the impact response of TFP with assumptions about its long-run drivers (e.g., Beaudry-Portier 2006 assumes news shocks are the sole long-run driver of TFP). The patent-based IV avoids all of these assumptions, relying only on the exclusion restriction that patent applications, after controlling for expectations and policy, capture news about future technological change and nothing else.

Q2. How do patent applications contain information about future technology?

Patent applications contain information about potential future technological change because exclusive rights create a powerful incentive to apply as early as possible, making patent applications lead TFP improvements by years, while controlling for contemporaneous economic conditions removes the endogeneity of patent filings to current booms. The length of time between application and the eventual diffusion of the innovation within the economy can be several years. The filing date serves as the first measurable time at which the news occurs, even though the underlying idea predates the application. The component of applications orthogonal to SPF forecasts and policy changes represents news about future technology not driven by current conditions.

Q3. What are the macroeconomic effects of technology news shocks?

Technology news shocks generate a broad-based expansion—output, consumption, and investment all rise well before any material increase in TFP is recorded—and financial markets price in news shocks on impact, while most macro aggregates respond with some delay. The positive conditional co-movements are consistent with optimism about future income and productivity generating pre-emptive expansion. Despite these theoretically attractive features, the news shock accounts for only a modest share of macroeconomic fluctuations at business cycle frequencies.

The finding that news shocks account for only a modest share of macro fluctuations at business cycle frequencies implies that, while identified news shocks behave consistently with the news-driven business cycle hypothesis in qualitative terms, they contribute only modestly to aggregate volatility—a finding that differs from models in which news shocks are a primary driver of cycles. This quantitative finding is informative precisely because the identification is instrument-based and free of the theoretical priors imposed by traditional sign-restriction and FEVD approaches, lending credibility to it as an estimate of the true importance of news shocks.

Key concepts

technology news shock : a shock that raises expectations about future aggregate TFP growth without any immediate change in current TFP; the paper’s IV identifies shocks that have no short-run effect on TFP but are a significant driver of its trend component. patent-based instrument : the component of patent applications orthogonal to pre-existing macroeconomic beliefs (SPF), contemporary monetary and fiscal policy changes (narrative accounts), and own lags; used as an IV for technology news shocks that avoids traditional identifying restrictions. news-driven business cycle hypothesis : the proposition that economic fluctuations can arise from changes in agents’ expectations about future fundamentals (particularly future productivity) even absent any current change in those fundamentals; the paper finds qualitative support but only modest quantitative importance.

High-Frequency-Identification | Macro Paper Warehouse

Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements

In depth

Q1. What are the alternative FOMC statements and how are they used?

Q2. How is the policy stance measure constructed?

Q3. How is the stance decomposed into expected and surprise components?

Q4. How is the measure validated and what are its macroeconomic effects?

Q5. What counterfactual analysis does the framework enable?

Key concepts

Balance-Sheet Policy and the Term Premium: High-Frequency Evidence

In depth

Q1. Does balance-sheet policy move long rates through the term premium or through expected short rates?

Q2. How is the effect identified, and why high-frequency?

Q3. What does this imply for the pace of balance-sheet runoff?

Key concepts

Patents, News, and Business Cycles

In depth

Q1. What is the identification strategy and why does it relax traditional assumptions?

Q2. How do patent applications contain information about future technology?

Q3. What are the macroeconomic effects of technology news shocks?

Q4. What does the modest share of variance explained imply?

Key concepts