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Forecast dispersion, dissenting votes, and monetary policy preferences of FOMC members: the role of individual career characteristics and political aspects

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  • Stefan Eichler

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  • Tom Lähner

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Abstract

Using data from 1992 to 2001, we study the impact of members’ economic forecasts on the probability of casting dissenting votes in the Federal Open Market Committee (FOMC). Employing standard ordered probit techniques, we find that higher individual inflation and real GDP growth forecasts (relative to the committee’s median) significantly increase the probability of dissenting in favor of tighter monetary policy, whereas higher individual unemployment rate forecasts significantly decrease it. Using interaction models, we find that FOMC members with longer careers in government, industry, academia, non-governmental organizations (NGOs), or on the staff of the Board of Governors are more focused on output stabilization, while FOMC members with longer careers in the financial sector or on the staffs of regional Federal Reserve Banks are more focused on inflation stabilization. We also find evidence that politics matters, with Republican appointees being much more focused on inflation stabilization than Democratic appointees. Moreover, during the entire Clinton administration ‘natural’ monetary policy preferences of Bank presidents and Board members for inflation and output stabilization were more pronounced than under periods covering the administrations of both George H.W. Bush and George W. Bush, respectively. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Stefan Eichler & Tom Lähner, 2014. "Forecast dispersion, dissenting votes, and monetary policy preferences of FOMC members: the role of individual career characteristics and political aspects," Public Choice, Springer, vol. 160(3), pages 429-453, September.
  • Handle: RePEc:kap:pubcho:v:160:y:2014:i:3:p:429-453
    DOI: 10.1007/s11127-013-0099-1
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    References listed on IDEAS

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    Cited by:

    1. Sylvester Eijffinger & Ronald Mahieu & Louis Raes, 2016. "Monetary Policy Committees, Voting Behavior and Ideal Points," BAFFI CAREFIN Working Papers 1628, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Bennani, Hamza & Farvaque, Etienne & Stanek, Piotr, 2018. "Influence of regional cycles and personal background on FOMC members’ preferences and disagreement," Economic Modelling, Elsevier, vol. 68(C), pages 416-424.
    3. Hamza Bennani, 2015. "Dissecting the brains of central bankers: The case of the ECB’s Governing Council members on reforms," International Economics, CEPII research center, issue 141, pages 97-114.
    4. Carsten Hefeker & Blandine Zimmer, 2015. "Optimal Conservatism and Collective Monetary Policymaking under Uncertainty," Open Economies Review, Springer, vol. 26(2), pages 259-278, April.
    5. Schultefrankenfeld, Guido, 2017. "Appropriate monetary policy and forecast disagreement at the FOMC," Discussion Papers 39/2017, Deutsche Bundesbank.
    6. repec:eee:jbfina:v:87:y:2018:i:c:p:282-292 is not listed on IDEAS
    7. Eichler, Stefan & Lähner, Tom & Noth, Felix, 2016. "Regional Banking Instability and FOMC Voting," IWH Discussion Papers 15/2016, Halle Institute for Economic Research (IWH).
    8. repec:eee:ecolet:v:155:y:2017:i:c:p:55-58 is not listed on IDEAS
    9. Hamza Bennani & Tobias Kranz & Matthias Neuenkirch, 2017. "Disagreement Between the FOMC and the Fed's Staff: New Insights Based on a Counterfactual Interest Rate," Research Papers in Economics 2017-10, University of Trier, Department of Economics.

    More about this item

    Keywords

    FOMC; Dissenting votes; Individual forecasts; Career characteristics; Political affiliation; E52; E58; E43;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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