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Transparency and Deliberation within the FOMC: a Computational Linguistics Approach

  • 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)

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/Discussion-Papers/2014/CFMDP2014-11-Paper.pdf
File Function: Revised version, 2014
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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
Contact details of provider: Web page: http://www.centreformacroeconomics.ac.uk/

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  1. Hansen, Stephen & McMahon, Michael & Velasco Rivera, Carlos, 2014. "Preferences or private assessments on a monetary policy committee?," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 16-32.
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  12. Gurkaynak, Refet S & Sack, Brian & Swanson, Eric T, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," MPRA Paper 820, University Library of Munich, Germany.
  13. Andrea Prat, 2002. "The wrong kind of transparency," LSE Research Online Documents on Economics 3679, London School of Economics and Political Science, LSE Library.
  14. Hans Gersbach & Volker Hahn, 2012. "Information acquisition and transparency in committees," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(2), pages 427-453, May.
  15. 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.
  16. 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, March.
  17. Fligstein, Neil & Brundage, Jonah S & Schultz, Michael, 2014. "Why the Federal Reserve Failed to See the Financial Crisis of 2008: The Role of “Macroeconomics†as a Sense making and Cultural Frame," Institute for Research on Labor and Employment, Working Paper Series qt97k6t78z, Institute of Industrial Relations, UC Berkeley.
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