In the early 1990s, reporters would anxiously tail Alan Greenspan as he made his way to FOMC meetings, desperate to get a glimpse of his briefcase. Why? Conventional wisdom was that the width of Greenspan’s luggage could hold the secret to the Fed’s monetary moves. But times have changed; technological and financial developments have transformed the Fed from a financial black box into a vocal, increasingly transparent institution.
In other words, the Fed has evolved. Fed watching, on the other hand, remains stuck in the nineties. Instead of obsessing over dimensions of a briefcase, analysts now hang on a single word or phrase–consumed by the granular details of massive, text-based datasets. This book presents a potential solution to this problem by demonstrating how the latest advances in automated text analysis combined with the precision of domain expertise is the key to understanding how central banks move markets with their words.
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