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

Dimitrios Kanelis, Lars H. Kranzmann and Pierre L. Siklos

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

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.

Keywords: explainable artificial intelligence; financial stability; FOMC deliberations; monetary policy communication; natural language processing (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Pages: 99 pages
Date: 2025-04, Revised 2026-09
New Economics Papers: this item is included in nep-big, nep-cba, nep-eec, nep-mac and nep-mon
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https://crawford.anu.edu.au/sites/default/files/20 ... iginal_April2025.pdf Original Version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2025-25

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