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Transparency and Deliberation within the FOMC: a Computational Linguistics Approach

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  • Stephen Hansen

    ()
    (Barcelona Graduate School of Economics (Barcelona GSE))

  • Michael McMahon

    ()
    (University of Warwick, Department of Economics
    Centre for Macroeconomics (CFM))

  • Andrea Prat

    ()
    (Columbia University, Graduate School of Business)

Abstract

How does transparency, a key feature of central bank design, affect the deliberation of monetary policymakers? We exploit a natural experiment in the Federal Open Market Committee in 1993 together with computational linguistic models (particularly Latent Dirichlet Allocation) to measure the effect of increased transparency on debate. Commentators have hypothesized both a beneficial discipline effect and a detrimental conformity effect. A difference-in-differences approach inspired by the career concerns literature uncovers evidence for both effects. However, the net effect of increased transparency appears to be a more informative deliberation process.

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File URL: http://www.centreformacroeconomics.ac.uk/pdf/CFMDP2014-11-Paper.pdf
File Function: Revised version, 2014
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Bibliographic Info

Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1411.

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Length: 57 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:cfm:wpaper:1411

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Web page: http://www.centreformacroeconomics.ac.uk/
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Keywords: Monetary policy; deliberation; FOMC; transparency; career concerns;

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  1. Andrea Prat, 2002. "The wrong kind of transparency," LSE Research Online Documents on Economics 3679, London School of Economics and Political Science, LSE Library.
  2. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
  3. Gilat Levy, 2004. "Anti-herding and strategic consultation," LSE Research Online Documents on Economics 541, London School of Economics and Political Science, LSE Library.
  4. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
  5. Avery, Christopher N. & Chevalier, Judith A., 1999. "Herding over the career," Economics Letters, Elsevier, vol. 63(3), pages 327-333, June.
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  7. Olivier Coibion & Yuriy Gorodnichenko, 2012. "Why Are Target Interest Rate Changes So Persistent?," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 126-62, October.
  8. Lombardelli, Clare & Proudman, James & Talbot, James, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making," MPRA Paper 823, University Library of Munich, Germany.
  9. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
  10. Levy, Gilat, 2004. "Anti-herding and strategic consultation," European Economic Review, Elsevier, vol. 48(3), pages 503-525, June.
  11. Clare Lombardelli & James Proudman & James Talbot, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
  12. Stephen Hansen & Michael McMahon & Carlos Velasco Rivera, 2013. "How Expoerts Decide: Preferences or Private Assessments on a Monetary Policy Committee?," CESifo Working Paper Series 4201, CESifo Group Munich.
  13. Gersbach, Hans & Hahn, Volker, 2008. "Information Acquisition and Transparency in Committees," CEPR Discussion Papers 6677, C.E.P.R. Discussion Papers.
  14. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  15. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2005. "Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033305, December.
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