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The Role of the Bias in Crafting Consensus: FOMC Decision Making in the Greenspan Era

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Author Info

  • Henry W. Chappell, Jr.

    (Department of Economics, University of South Carolina)

  • Rob Roy McGregor

    (Department of Economics, University of North Carolina at Charlotte)

  • Todd A. Vermilyea

    (Supervision, Regulation, and Credit, Federal Reserve Bank of Philadelphia)

Abstract

We examine the role of the "bias" associated with a monetary policy directive - wording in the directive that concerns possible policy shifts in the period between one FOMC meeting and the next - in FOMC decision making in the Greenspan years. Previous studies have suggested that the bias provided the Chairman a tool for orchestrating Committee consensus. Our evidence shows that when the bias had meaningful implications for intermeeting funds rate changes (1987-92), it influenced voting by FOMC members. Biases both provoked and discouraged dissents, depending on the direction of the bias and the preferences of individual Committee members. When the bias did not have meaningful implications for intermeeting policy adjustments (1993-99), we find no evidence that it affected members' voting choices. Overall, our results are consistent with the view that FOMC members voted on the basis of a rational assessment of the policy content of proposed directives.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 3 (2007)
Issue (Month): 2 (June)
Pages: 39-60

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Handle: RePEc:ijc:ijcjou:y:2007:q:2:a:2

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Web page: http://www.ijcb.org/

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Cited by:
  1. Paul Hubert, 2011. "Central Bank Forecasts as an Instrument of Monetary Policy," Documents de Travail de l'OFCE 2011-23, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. Peter Tillmann, 2010. "Strategic Forecasting on the FOMC," MAGKS Papers on Economics 201017, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Hamza Bennani, 2012. "National influences inside the ECB: an assessment from central bankers' statements," Working Papers hal-00992646, HAL.
  4. Wojciech Charemza & Daniel Ladley, 2012. "MPC Voting, Forecasting and Inflation," Discussion Papers in Economics 12/23, Department of Economics, University of Leicester, revised Jan 2013.
  5. Zhang, Xinyu & Lu, Zudi & Zou, Guohua, 2013. "Adaptively combined forecasting for discrete response time series," Journal of Econometrics, Elsevier, vol. 176(1), pages 80-91.
  6. Paul Hubert, 2013. "The influence and policy signaling role of FOMC forecasts," Documents de Travail de l'OFCE 2013-03, Observatoire Francais des Conjonctures Economiques (OFCE).
  7. Peter Tillmann, 2011. "Reputation and Forecast Revisions: Evidence from the FOMC," MAGKS Papers on Economics 201128, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  8. El-Shagi, Makram & Jung, Alexander, 2013. "Does the Greenspan era provide evidence on leadership in the FOMC?," Working Paper Series 1579, European Central Bank.

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