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Transparency and Deliberation within the FOMC: A Computational Linguistics Approach

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  • Stephen Hansen
  • Michael McMahon
  • Andrea Prat

Abstract

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.

Suggested Citation

  • Stephen Hansen & Michael McMahon & Andrea Prat, 2014. "Transparency and Deliberation within the FOMC: A Computational Linguistics Approach," CEP Discussion Papers dp1276, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1276
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    More about this item

    Keywords

    Monetary policy; deliberation; FOMC; transparency; career concerns;
    All these keywords.

    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
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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