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Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve

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  • Ellen E. Meade
  • David Stasavage

Abstract

When central banks are transparent about their decision making, there may be clear benefits in terms ofcredibility, policy effectiveness, and improved democratic accountability. While recent literature has focusedon all of these advantages of transparency, in this paper we consider one potential cost: the possibility thatpublishing detailed records of deliberations will make members of a monetary policy committee more reluctantto offer dissenting opinions. Drawing on the recent literature on expert advisors with ¿career concerns¿, weconstruct a model that compares incentives for members of a monetary policy committee to voice dissent whendeliberations occur in public, and when they occur in private. We then test the implications of the model usingan original dataset based on deliberations of the Federal Reserve¿s Federal Open Market Committee, askingwhether the FOMC¿s decision in 1993 to begin releasing full transcripts of its meetings has altered incentivesfor participants to voice dissenting opinions. We find this to be the case with regard to both opinions on shortterminterest rates and on the ¿bias¿ for future policy.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0608.

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Date of creation: Jan 2004
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Handle: RePEc:cep:cepdps:dp0608

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: transparency; central banking; career concerns;

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  1. Georgios Chortareas & David Stasavage & Gabriel Sterne, 2003. "Does monetary policy transparency reduce disinflation costs?," Manchester School, University of Manchester, vol. 71(5), pages 521-540, 09.
  2. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Manchester School, University of Manchester, vol. 71(5), pages 478-497, 09.
  3. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, vol. 95(3), pages 862-877, June.
  4. Levy, Gilat, 2004. "Anti-herding and strategic consultation," European Economic Review, Elsevier, vol. 48(3), pages 503-525, June.
  5. Daniel Thornton & David C. Wheelock, 2000. "A history of the asymmetric policy directive," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 1-16.
  6. Petra Gerlach-Kristen, 2004. "Is the MPC's Voting Record Informative about Future UK Monetary Policy?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 299-313, 06.
  7. Faust, Jon & Svensson, Lars E O, 2001. "Transparency and Credibility: Monetary Policy with Unobservable Goals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 369-97, May.
  8. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "Professional advice," Journal of Economic Theory, Elsevier, vol. 126(1), pages 120-142, January.
  9. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
  10. Marvin Goodfriend, 1985. "Monetary mystique : secrecy and central banking," Working Paper 85-07, Federal Reserve Bank of Richmond.
  11. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
  12. Donald L. Kohn & Brian P. Sack, 2003. "Central bank talk: does it matter and why?," Finance and Economics Discussion Series 2003-55, Board of Governors of the Federal Reserve System (U.S.).
  13. Gilat Levy, 2004. "Anti-herding and strategic consultation," LSE Research Online Documents on Economics 541, London School of Economics and Political Science, LSE Library.
  14. Ottaviani, Marco & Sorensen, Peter, 2001. "Information aggregation in debate: who should speak first?," Journal of Public Economics, Elsevier, vol. 81(3), pages 393-421, September.
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