Transparency and Deliberation Within the Fomc: a Computational Linguistics Approach

Stephen Hansen (UPF)
Michael McMahon (Warwick)
Andrea Prat (Columbia)

Abstract: How does transparency, a key feature of central bank design, affect monetary policymakers’ deliberations? We answer this question with a natural experiment in the Federal Open Market Committee in 1993 and computational linguistics algorithms. Theory predicts a positive discipline effect and negative conformity effect. We first find large behavioural responses to transparency. We then propose a difference-in-differences approach inspired by the career concerns literature, and find evidence for both effects. Finally, we use an influence measure that suggests the positive effect dominates.

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