Date of Award

6-2026

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Matthew Higgins, Ph.D.

Second Advisor

Eskander Alvi, Ph.D.

Third Advisor

Kevin Corder, Ph.D.

Keywords

Central bank transparency, event study analysis, financial markets, monetary policy communication, surprises in daily news sentiment, unanticipated monetary policy communication

Abstract

Monetary policy communication has become a crucial tool for central banks to shape market expectations and enhance transparency. The goal of this paper is to measure how effectively the Fed communicates monetary policy through FOMC minutes by analyzing the impact of the release of FOMC minutes on financial markets through textual sentiment analysis of daily newspaper articles. I measure the surprise in the daily news sentiment that is caused by FOMC minutes release. The surprise in the sentiment is calculated as the change in the news sentiment that is measured over three weeks prior to the release of the FOMC minutes as compared to news sentiment with in one day after the release of the minutes.

Using an event-study methodology, I test whether the news sentiment surprise due to the release of the FOMC minutes affects the one-day returns in the S&P 500, a change in VIX, treasury rate, mortgage rate, and exchange rate. A key focus of this study is the structural shift in Fed communication post-2011. Since March 2011, the Fed began holding a press conference on the day of the FOMC meeting that provides real-time insights into policy decisions, which may have diminished the informational content of minutes. If the Fed effectively communicates its policy stance through the press conference, the new information content of the minutes release should diminish. In other words, if these press conferences effectively reduce uncertainty, the informational value of the minutes released three weeks later should decline. For this reason, the analysis is conducted separately for the pre- and post- 2011 periods. I find that the magnitude and significance of the effect of sentiment changes due to the minutes release on the daily returns falls across the two periods. Consistent with this expectation, my findings confirm that the impact of sentiment surprises from FOMC minutes on stock market returns and other financial assets declined post-2011. This suggests that the Fed’s shift toward real-time communication via press conferences has improved market transparency, reducing the surprise element of minutes.

To further examine the content of monetary policy communication, I disaggregate sentiment surprises into key economic topics such as monetary policy, economic growth, inflation, employment, and unemployment using Latent Dirichlet Allocation (LDA). I am able to disaggregate the sentiment surprises into individual topics. I find that the Fed is more effective in conveying information about monetary policy and economic growth than in shaping market perceptions regarding inflation and labor market conditions. This topic-level analysis provides deeper insights into the asymmetric effectiveness of different aspects of monetary policy communication.

This study makes several important contributions to existing literature by introducing a daily news-based measure of monetary policy surprises and demonstrating how textual analysis can enhance the understanding of monetary policy transmission through media sentiment. First, it introduces a novel approach to measuring the surprises in monetary policy communication by leveraging daily newspaper sentiment, capturing real-time market reactions to policy announcements. Second, it demonstrates how machine learning techniques, such as LDA, can extract valuable insights from unstructured textual data, allowing for a more granular analysis of communication effectiveness. Finally, the findings underscore the evolving role of central bank transparency in the financial markets, highlighting how different communication channels such as minutes versus press conferences impact financial markets in shaping market expectations. By bridging the gap between monetary policy communication, media sentiment, and financial market reactions, this research provides new evidence on how central banks can refine their communication strategies to enhance market stability and policy effectiveness.

Access Setting

Dissertation-Open Access

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Included in

Finance Commons

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