Embracing the Future: Tense Patterns and Forward-Looking Central Bank Communication

Andrea Guerrieri D'Amati and Gavin Hassall
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Andrea Guerrieri D'Amati: University of Warwick
Gavin Hassall: University of Bath

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper studies how forward-looking language in the Federal Open Market Committee (FOMC) minutes affects market expectations of future interest rates. We analyse the text of the FOMC minutes from 1997 to 2023 with structural topic modelling combined with LLM-based tone and tense analysis. We estimate market reactions in an event study that exploits the fact that the release of the minutes involves no policy change, ensuring any market response reflects pure expectation revisions. We show that forward-looking information about certain topics has systematically moved private sector expectations of future interest rates. In particular, hawkish forward-looking inflation language raises 2-, 5- and 10-year Treasury yields. We interpret these findings through a model where the private sector does not observe the central bank’s responsiveness to its inflation outlook, and learns about it via a signal extraction problem. We argue that communication effectiveness depends not only on what topics are discussed but on how they are temporally framed.

Keywords: Central Bank Communication; Monetary Policy; Market Expectations JEL codes: E52; E58; E59 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1619

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