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Interpreting Fedspeak with Confidence: A LLM-Based Uncertainty-Aware Framework Guided by Monetary Policy Transmission Paths

Created by
  • Haebom

Author

Rui Yao, Qi Chai, Jinhai Yao, Siyuan Li, Junhao Chen, Qi Zhang, Hao Wang

Outline

This paper proposes an uncertainty-aware, large-scale language model (LLM)-based framework for interpreting "Fedspeak," the distinctive language of the U.S. Federal Reserve (Fed), and classifying monetary policy stance. To enrich the semantic and contextual representations of Fedspeak, we integrate domain-specific inference based on monetary policy communication mechanisms. Furthermore, we introduce a dynamic uncertainty decoding module that assesses the reliability of model predictions, thereby improving classification accuracy and model reliability. Experimental results demonstrate that the proposed framework achieves state-of-the-art performance in policy stance analysis and demonstrates a significant positive correlation between perceived uncertainty and model error rates, validating its effectiveness as a diagnostic signal for perceptual uncertainty. This provides valuable insights for financial forecasting, algorithmic trading, and data-driven policy analysis.

Takeaways, Limitations

Takeaways:
Improving the accuracy and reliability of monetary policy stance classification through an LLM-based Fedspeak interpretation framework.
Improving the reliability of model predictions and presenting the possibility of error analysis using a dynamic uncertainty decoding module.
It presents potential applications in various fields, including financial forecasting, algorithmic trading, and data-driven policy analysis.
Contributes to improving model reliability by revealing that perceptual uncertainty is correlated with model error rate.
Limitations:
Further verification of the generalization performance of the framework presented in this paper is needed.
There is a possibility of overfitting for a specific domain (Fedspeak).
Additional application and verification to actual market situations are required.
Further research is needed on the accuracy and interpretation of uncertainty measurements.
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