Does the Greenspan Era Provide Evidence on Leadership in the FOMC?

This paper provides new empirical evidence on the presence of chairman dominance in the FOMC. It uses a novel data set with information on individual forecasts of FOMC members in the 1990s. The approach of this paper is to estimate individual Taylor-type reaction functions for FOMC participants based on their interest rate preferences and economic information in real-time. A bootstrap analysis, which exploits information contained in these reaction functions, constructs counterfactual distributions of disagreement among FOMC members. By comparing these distributions with the observed dissenting behaviour, we find empirical evidence in favour of an “invisible hand”, which influenced policy-makers’ preferences towards the consensus view during the committee deliberations. While several explanations for this behaviour are conceivable (e.g. informal rules, consensus tradition, joint paradigms, bias statement), during the Greenspan era the presence of a dominant chairman is the most plausible explanation for it.