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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. 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.
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  6. Gilat Levy, 2004. "Anti-herding and strategic consultation," LSE Research Online Documents on Economics 541, London School of Economics and Political Science, LSE Library.
  7. Stephen Hansen & Carlos Velasco Rivera & Michael McMahon, 2013. "How Experts Decide: Preferences or Private Assessments on a Monetary Policy Committee?," CAMA Working Papers 2013-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  8. Andrea Prat, 2002. "The Wrong Kind of Transparency," STICERD - Theoretical Economics Paper Series 439, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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  11. Olivier Coibion & Yuriy Gorodnichenko, 2011. "Why are target interest rate changes so persistent?," Working Papers 106, Department of Economics, College of William and Mary.
  12. 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.
  13. 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.
  14. Bauke Visser & Otto H Swank, 2007. "On Committees of Experts," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 337-372, 02.
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