Transparency and Deliberation within the FOMC: a Computational Linguistics Approach

Wednesday 8 October 2014, 1.00PM to 2.00pm

Speaker(s): Michael McMahon, University of Warwick

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: Monetary policy, deliberation, FOMC, transparency, career concerns JEL Codes: E52, E58, D78

Location: ARRC Auditorium A/RC014

Admission: All welcome.