Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches

The Federal Reserve System has an institutional mandate to pursue price stability and maximum sustainable employment; however, it remains unclear whether it can also pursue secondary objectives. The academic literature has largely argued that it should not. We characterize the Fed’s interpretation of its mandate using state-of-the-art methods from natural language processing, including a collection of large language models (LLMs) that we modify for enhanced performance on central bank texts. We apply these methods and models to a comprehensive corpus of Fed speeches delivered between 1960 and 2022. We find that the Fed perceives financial stability to be the most important policy concern that is not directly enumerated in its mandate, especially in times when the debt-to-GDP ratio is high, but does not generally treat it as a separate policy objective. In its policy discourse, it has frequently discussed the use of monetary policy to achieve financial stability, which we demonstrate generates movements in asset prices, even after rigorously controlling for macroeconomic and financial variables.

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Publication Details

Journal
Journal of Econometrics
Published
2025-02-07
DOI
https://doi.org/10.1016/j.jeconom.2025.105948
Citations
6
Primary Topic
Monetary Policy and Economic Impact
Type
article
Field-Weighted Citation Impact
18.51
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article

Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches

Christoph Bertsch, Isaiah Hull, Robin L. Lumsdaine, Xin Zhang
6 citations
Journal of Econometrics
Monetary Policy and Economic Impact
18.51
article

Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches

Christoph Bertsch, Isaiah Hull, Robin L. Lumsdaine, Xin Zhang
article en
6 citations

Abstract

The Federal Reserve System has an institutional mandate to pursue price stability and maximum sustainable employment; however, it remains unclear whether it can also pursue secondary objectives. The academic literature has largely argued that it should not. We characterize the Fed’s interpretation of its mandate using state-of-the-art methods from natural language processing, including a collection of large language models (LLMs) that we modify for enhanced performance on central bank texts. We apply these methods and models to a comprehensive corpus of Fed speeches delivered between 1960 and 2022. We find that the Fed perceives financial stability to be the most important policy concern that is not directly enumerated in its mandate, especially in times when the debt-to-GDP ratio is high, but does not generally treat it as a separate policy objective. In its policy discourse, it has frequently discussed the use of monetary policy to achieve financial stability, which we demonstrate generates movements in asset prices, even after rigorously controlling for macroeconomic and financial variables.

Journal of EconometricsVol. 249
Cochlear (Australia) (AU), Swedish National Bank (SE), National Bureau of Economic Research (US), University of North Carolina Health Care (US), Cognizant (United States) (US), BI Norwegian Business School (NO), American University (US), Tinbergen Institute (NL), Financial Stability Board (CH), Erasmus University Rotterdam (NL)
Partnerships for the goals
Openalex Percentile: Top 1%
Monetary Policy and Economic Impact
18.51
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Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches — Christoph Bertsch, Isaiah Hull, et al. · Journal of Econometrics (2025) | TGRS Research Map | TGRS