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CEP Discussion Paper
Transparency and Deliberation within the FOMC: A Computational Linguistics Approach
Stephen Hansen, Michael McMahon and Andrea Prat June 2014
Paper No' CEPDP1276:
Full Paper (pdf)

JEL Classification: E52; E58; D78

Tags: monetary policy; deliberation; fomc; transparency; career concerns

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.