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Transparency and Deliberation within the FOMC: A Computational Linguistics Approach

Stephen  Hansen,  Michael  McMahon,  Andrea  Prat,  June 2014
Paper No' CEPDP1276: | Full paper (pdf)
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Keywords: Monetary policy, deliberation, FOMC, transparency, career concerns

JEL Classification: E52; E58; D78

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: CEP Discussion Papers
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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.