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Voting right rotation, behavior of committee members and financial market reactions: evidence from the U.S. Federal Open Market Committee

Author

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  • Ehrmann, Michael
  • Tietz, Robin
  • Visser, Bauke

Abstract

Whether Federal Reserve Bank presidents have the right to vote on the U.S. monetary policy committee depends on a mechanical, yearly rotation scheme. Rotation is without exclusion: also nonvoting presidents attend and participate in the meetings of the committee. Does voting status change behavior? We find that the data go against the hypothesis that without the voting right, presidents use their public speeches and their meeting interventions to compensate for the loss of formal influence; rather, they support the hypothesis that the voting right makes presidents more involved. We also find that speeches move financial markets less in years that presidents vote. We argue that these discounts are consistent with their communication behavior. JEL Classification: D71, D72, E58

Suggested Citation

  • Ehrmann, Michael & Tietz, Robin & Visser, Bauke, 2021. "Voting right rotation, behavior of committee members and financial market reactions: evidence from the U.S. Federal Open Market Committee," Working Paper Series 2569, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212569
    Note: 203739
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    References listed on IDEAS

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    1. Geoffrey M. B. Tootell, 1991. "Regional economic conditions and the FOMC votes of district presidents," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 3-16.
    2. repec:fip:fedgfn:2015-05-26 is not listed on IDEAS
    3. Gnan, Phillipp & Rieder, Kilian, 2022. "The (Not So) Quiet Period: Communication by ECB Decision-makers during Monetary Policy Blackout Days," CEPR Discussion Papers 15735, C.E.P.R. Discussion Papers.
    4. Meade, Ellen E & Sheets, D Nathan, 2005. "Regional Influences on FOMC Voting Patterns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 661-677, August.
    5. Riboni, Alessandro & Ruge-Murcia, Francisco, 2014. "Dissent in monetary policy decisions," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 137-154.
    6. Nicholas A. Burk & Melanie Josselyn & Ellen E. Meade, 2015. "The FOMC Meeting Minutes: An Assessment of Counting Words and the Diversity of Views," FEDS Notes 2015-05-26-2, Board of Governors of the Federal Reserve System (U.S.).
    7. repec:dau:papers:123456789/7683 is not listed on IDEAS
    8. Kai Li & Hernán Ortiz‐Molina & Xinlei Zhao, 2008. "Do Voting Rights Affect Institutional Investment Decisions? Evidence from Dual‐Class Firms," Financial Management, Financial Management Association International, vol. 37(4), pages 713-745, December.
    9. Tillmann, Peter, 2011. "Strategic forecasting on the FOMC," European Journal of Political Economy, Elsevier, vol. 27(3), pages 547-553, September.
    10. Otto H. Swank & Bauke Visser, 2013. "Is Transparency To No Avail?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(4), pages 967-994, October.
    11. 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.
    12. Job Swank & Otto H. Swank & Bauke Visser, 2008. "How Committees of Experts Interact with the Outside World: Some Theory, and Evidence from the FOMC," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 478-486, 04-05.
    13. Bauke Visser & Otto H. Swank, 2007. "On Committees of Experts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 337-372.
    14. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
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    Cited by:

    1. Gnan, Phillipp & Rieder, Kilian, 2022. "The (Not So) Quiet Period: Communication by ECB Decision-makers during Monetary Policy Blackout Days," CEPR Discussion Papers 15735, C.E.P.R. Discussion Papers.
    2. Gnan, Phillipp & Rieder, Kilian, 2023. "The (not so) quiet period: Communication by ECB decision-makers during monetary policy blackout days☆," Journal of International Money and Finance, Elsevier, vol. 130(C).
    3. 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).

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    More about this item

    Keywords

    central bank communication; financial market response; FOMC; monetary policy committee; voting right rotation;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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