Working Paper: CEPR ID: DP9994
Authors: 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.
Keywords: career concerns; deliberation; FOMC; monetary policy; transparency
JEL Codes: D78; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased transparency (G38) | greater range of topics discussed by inexperienced members during economic situation discussion (FOMC1) (E39) |
| increased transparency (G38) | reference more quantitative data by inexperienced members (C80) |
| increased transparency (G38) | decrease in engagement during policy debate (FOMC2) (E52) |
| increased transparency (G38) | less likelihood for inexperienced members to interject, ask questions, and conform to chairman's discussion (D72) |
| increased transparency (G38) | net increase in informativeness of inexperienced members' statements (D83) |