IDEAS home Printed from https://ideas.repec.org/a/eee/poleco/v74y2022ics0176268022000490.html
   My bibliography  Save this article

Divided committees and strategic vagueness

Author

Listed:
  • Baerg, Nicole Rae
  • Krainin, Colin

Abstract

Recent research has found that central bank communications affect outcomes, for example, by moving financial markets and shaping inflation expectations. Missing from the literature is an understanding of why the content of communications varies in the first place. We present an agenda setting model of a monetary policy committee (MPC) with committee members who bargain over the degree of vagueness in central bank communications. We generate hypotheses about the types of MPCs that are expected to produce more or less vague communications. We test our propositions empirically using data from the U.S. Federal Open Market Committee (FOMC) during Arthur Burns’s tenure (1970–1978) and find evidence that the FOMC uses vaguer language when the committee chair and median committee member have aligned preferences than when their biases are opposed. Our results show that the institutional design of the MPC matters for the level of vagueness committees communicate.

Suggested Citation

  • Baerg, Nicole Rae & Krainin, Colin, 2022. "Divided committees and strategic vagueness," European Journal of Political Economy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:poleco:v:74:y:2022:i:c:s0176268022000490
    DOI: 10.1016/j.ejpoleco.2022.102240
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0176268022000490
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejpoleco.2022.102240?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alessandro Riboni & Francisco Ruge‐Murcia, 2023. "The Power Of The Federal Reserve Chair," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 727-756, May.
    2. Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008. "Central bank boards around the world: Why does membership size differ?," European Journal of Political Economy, Elsevier, vol. 24(4), pages 817-832, December.
    3. S. Nageeb Ali & Jacob K. Goeree & Navin Kartik & Thomas R. Palfrey, 2008. "Information Aggregation in Standing and Ad Hoc Committees," American Economic Review, American Economic Association, vol. 98(2), pages 181-186, May.
    4. Bernard Caillaud & Jean Tirole, 2007. "Consensus Building: How to Persuade a Group," American Economic Review, American Economic Association, vol. 97(5), pages 1877-1900, December.
    5. Chang, Kelly H, 2001. "The President versus the State: Appointments in the American System of Separated Powers and the Federal Reserve," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(2), pages 319-355, October.
    6. , & ,, 2014. "Rhetoric in legislative bargaining with asymmetric information," Theoretical Economics, Econometric Society, vol. 9(2), May.
    7. Hansen, Stephen & McMahon, Michael & Tong, Matthew, 2019. "The long-run information effect of central bank communication," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 185-202.
    8. Jeffrey K. Staton & Georg Vanberg, 2008. "The Value of Vagueness: Delegation, Defiance, and Judicial Opinions," American Journal of Political Science, John Wiley & Sons, vol. 52(3), pages 504-519, July.
    9. Blinder, Alan S., 2007. "Monetary policy by committee: Why and how?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 106-123, March.
    10. Dal Bo, Ernesto, 2006. "Committees with supermajority voting yield commitment with flexibility," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 573-599, May.
    11. Gandrud, Christopher & Grafström, Cassandra, 2015. "Inflated Expectations: How Government Partisanship Shapes Monetary Policy Bureaucrats’ Inflation Forecasts," Political Science Research and Methods, Cambridge University Press, vol. 3(02), pages 353-380, May.
    12. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
    13. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    14. Feng Shi & Misha Teplitskiy & Eamon Duede & James A. Evans, 2019. "The wisdom of polarized crowds," Nature Human Behaviour, Nature, vol. 3(4), pages 329-336, April.
    15. Alberto Alesina & Alex Cukierman, 1990. "The Politics of Ambiguity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(4), pages 829-850.
    16. Munday, Tim & Brookes, James, 2021. "Mark my words: the transmission of central bank communication to the general public via the print media," Bank of England working papers 944, Bank of England.
    17. repec:dau:papers:123456789/7683 is not listed on IDEAS
    18. Henrik Jensen, 2002. "Optimal Degrees of Transparency in Monetary Policymaking," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 399-422, September.
    19. van der Cruijsen, C.A.B. & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency : A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.
    20. EllenE. Meade & David Stasavage, 2008. "Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve," Economic Journal, Royal Economic Society, vol. 118(528), pages 695-717, April.
    21. Gandrud, Christopher & Grafström, Cassandra, 2015. "Inflated Expectations: How Government Partisanship Shapes Monetary Policy Bureaucrats’ Inflation Forecasts," Political Science Research and Methods, Cambridge University Press, vol. 3(2), pages 353-380, May.
    22. Edward Nelson, 2021. "The Emergence of Forward Guidance As a Monetary Policy Tool," Finance and Economics Discussion Series 2021-033, Board of Governors of the Federal Reserve System (U.S.).
    23. Klodiana Istrefi, 2019. "In Fed Watchers Eyes: Hawks, Doves and Monetary Policy," Working papers 725, Banque de France.
    24. Bordo, Michael & Istrefi, Klodiana, 2023. "Perceived FOMC: The making of hawks, doves and swingers," Journal of Monetary Economics, Elsevier, vol. 136(C), pages 125-143.
    25. Alessandro Riboni & Francisco J. Ruge-Murcia, 2010. "Monetary Policy by Committee: Consensus, Chairman Dominance, or Simple Majority?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(1), pages 363-416.
    26. Binder, Carola, 2017. "Fed speak on main street: Central bank communication and household expectations," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 238-251.
    27. Michael Ehrmann & Marcel Fratzscher, 2013. "Dispersed communication by central bank committees and the predictability of monetary policy decisions," Public Choice, Springer, vol. 157(1), pages 223-244, October.
    28. Firrell, Alastair & Reinold, Kate, 2020. "Uncertainty and voting on the Bank of England’s Monetary Policy Committee," Bank of England working papers 898, Bank of England.
    29. Andrew Haldane & Michael McMahon, 2018. "Central Bank Communications and the General Public," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 578-583, May.
    30. Gilligan, Thomas W & Krehbiel, Keith, 1987. "Collective Decisionmaking and Standing Committees: An Informational Rationale for Restrictive Amendment Procedures," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(2), pages 287-335, Fall.
    31. Chappell, Henry W, Jr & McGregor, Rob Roy & Vermilyea, Todd, 2004. "Majority Rule, Consensus Building, and the Power of the Chairman: Arthur Burns and the FOMC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 407-422, June.
    32. Thomas Romer & Howard Rosenthal, 1979. "Bureaucrats Versus Voters: On the Political Economy of Resource Allocation by Direct Democracy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 563-587.
    33. Fortunato, David, 2019. "Legislative Review and Party Differentiation in Coalition Governments," American Political Science Review, Cambridge University Press, vol. 113(1), pages 242-247, February.
    34. van der Cruijsen, Carin & Demertzis, Maria, 2007. "The impact of central bank transparency on inflation expectations," European Journal of Political Economy, Elsevier, vol. 23(1), pages 51-66, March.
    35. Bholat, David & Broughton, Nida & Ter Meer, Janna & Walczak, Eryk, 2019. "Enhancing central bank communications using simple and relatable information," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 1-15.
    36. Henry Chappell & Rob McGregor & Todd Vermilyea, 2007. "The persuasive power of a Committee Chairman: Arthur Burns and the FOMC," Public Choice, Springer, vol. 132(1), pages 103-112, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brigitte Desroches & Sharon Kozicki & Laure Simon, 2024. "Monetary Policy Governance: Bank of Canada Practices to Support Policy Effectiveness," Discussion Papers 2024-14, Bank of Canada.
    2. Kokoszczyński, Ryszard & Mackiewicz-Łyziak, Joanna, 2024. "Making monetary policy in Poland: Are Polish hawks and doves different?," European Journal of Political Economy, Elsevier, vol. 81(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alan S. Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2024. "Central Bank Communication with the General Public: Promise or False Hope?," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 425-457, June.
    2. Jan C. van Ours, 2022. "How Retirement Affects Mental Health, Cognitive Skills and Mortality; an Overview of Recent Empirical Evidence," Tinbergen Institute Discussion Papers 22-050/V, Tinbergen Institute.
    3. Alessandro Riboni & Francisco Ruge‐Murcia, 2023. "The Power Of The Federal Reserve Chair," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 727-756, May.
    4. Francisco Ruge‐Murcia, 2022. "How do central banks make decisions?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(4), pages 1643-1670, November.
    5. Brigitte Desroches & Sharon Kozicki & Laure Simon, 2024. "Monetary Policy Governance: Bank of Canada Practices to Support Policy Effectiveness," Discussion Papers 2024-14, Bank of Canada.
    6. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. van der Cruijsen, C.A.B., 2008. "The economic impact of central bank transparency," Other publications TiSEM 86c1ba91-1952-45b4-adac-8, Tilburg University, School of Economics and Management.
    8. Rieder, Kilian, 2022. "Monetary policy decision-making by committee: Why, when and how it can work," European Journal of Political Economy, Elsevier, vol. 72(C).
    9. Munday, Tim & Brookes, James, 2021. "Mark my words: the transmission of central bank communication to the general public via the print media," Bank of England working papers 944, Bank of England.
    10. Alan S. Blinder, 2009. "Making Monetary Policy by Committee," International Finance, Wiley Blackwell, vol. 12(2), pages 171-194, August.
    11. Curti, Filippo & Kazinnik, Sophia, 2023. "Central bank communication and website characteristics," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 1216-1241.
    12. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    13. Baranowski, Paweł & Doryń, Wirginia & Łyziak, Tomasz & Stanisławska, Ewa, 2021. "Words and deeds in managing expectations: Empirical evidence from an inflation targeting economy," Economic Modelling, Elsevier, vol. 95(C), pages 49-67.
    14. Eijffinger, Sylvester & Mahieu, Ronald & Raes, Louis, 2018. "Inferring hawks and doves from voting records," European Journal of Political Economy, Elsevier, vol. 51(C), pages 107-120.
    15. Istrefi, Klodiana & Odendahl, Florens & Sestieri, Giulia, 2023. "Fed communication on financial stability concerns and monetary policy decisions: Revelations from speeches," Journal of Banking & Finance, Elsevier, vol. 151(C).
    16. Alessandro Riboni & Francisco J. Ruge-Murcia, 2008. "The Dynamic (In)Efficiency of Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1001-1032, August.
    17. Jan Marc Berk & Beata K. Bierut, 2010. "Monetary Policy Committees: Meetings And Outcomes," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 569-588, October.
    18. El-Shagi, Makram & Jung, Alexander, 2015. "Does the Greenspan era provide evidence on leadership in the FOMC?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 173-190.
    19. Carlos Madeira & João Madeira & Paulo Santos Monteiro, 2023. "The origins of monetary policy disagreement: the role of supply and demand shocks," BIS Working Papers 1118, Bank for International Settlements.
    20. Mikael Apel & Carl Andreas Claussen & Petra Gerlach-Kristen & Petra Lennartsdotter & Øistein Røisland, 2013. "Monetary policy decisions – comparing theory and “inside” information from MPC members," Working Paper 2013/03, Norges Bank.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:74:y:2022:i:c:s0176268022000490. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505544 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.