In the early 1990s, reporters would anxiously tail Alan Greenspan as he made his way to Federal Open Market Committee meetings, desperate to get a glimpse of his briefcase. Why? Conventional
wisdom had it 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, the practice of investors trying to figure out the central bank’s next move based on signs and omens, has not. 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.
They do this because central banks have a profound impact on financial markets and investors struggle to keep informed about their complex policy decisions. 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. Authors Schnidman and MacMillan outline a method to not only examine every piece of every central bank communication, but to do it in a way that is completely
comprehensive and unbiased while quickly yielding hard, quantitative data that can be put to work in modern financial models.
