Deliberating American Monetary Policy
A Textual Analysis
536 pp., 6 x 9 in, 74 figures, 52 tables
- Published: November 1, 2013
A systematic analysis of Federal Reserve and congressional deliberations on monetary policy, drawing on textual analysis software and in-depth interviews with participants.
American monetary policy is formulated by the Federal Reserve and overseen by Congress. Both policy making and oversight are deliberative processes, although the effect of this deliberation has been difficult to quantify. In this book, Cheryl Schonhardt-Bailey provides a systematic examination of deliberation on monetary policy from 1976 to 2008 by the Federal Reserve's Open Market Committee (FOMC) and House and Senate banking committees. Her innovative account employs automated textual analysis software to study the verbatim transcripts of FOMC meetings and congressional hearings; these empirical data are supplemented and supported by in-depth interviews with participants in these deliberations. The automated textual analysis measures the characteristic words, phrases, and arguments of committee members; the interviews offer a way to gauge the extent to which the empirical findings accord with the participants' personal experiences.
Analyzing why and under what conditions deliberation matters for monetary policy, the author identifies several strategies of persuasion used by FOMC members, including Paul Volcker's emphasis on policy credibility and efforts to influence economic expectations. Members of Congress, however, constrained by political considerations, show a relative passivity on the details of monetary policy.
This is a unique book. It takes seriously that US monetary policy decisions are made by a committee and overseen by two Congressional committees. Others have looked at the committee structure, but none probe as deeply as this study. Unlike the optimal policy literature, the book recognizes that making monetary policy is part of a political process.
Allan H. Meltzer, The Galliot and Scaife University Professor of Political Economy and Distinguished Visiting Fellow, The Hoover Institution
In Deliberating American Monetary Policy Cheryl Schonhardt-Bailey seeks to understand how discussion and debates within the Federal Reserve, and between the Fed and Congress, affect the process and content of monetary policy. She uses mechanical textual analysis of tens of thousands of speeches and comments from the Federal Open Market Committee minutes and Congressional hearings, supplemented by dozens of in-depth interviews with participants. Schonhardt-Bailey also analyzes specific important episodes in American monetary history, such as the 'Volcker shock' of 1979-1981. This extraordinary study is the most methodologically sophisticated and empirically detailed analysis of the process of Fed decision-making and Congressional oversight ever conducted. It will be essential reading for anyone interested in how American monetary policy—or monetary policy in general—is made.
Jeffry Frieden, Professor of Government, Harvard University
Using highly innovative text analysis, Cheryl Schonhardt-Bailey offers novel insights into the deliberative world of US monetary policy as it moves after 1979 from a focus on monetary aggregates to the discussion economic conditions, with all too often Congress and the Federal Reserve talking past one another. A tour de force.
Albert Weale, Professor of Political Theory and Public Policy, University College London
The unique and effective combination of textual analysis and interviews with key players reveals an intriguing story about the use and success of persuasion by the chairmen and by members of the FOMC. This approach makes for a disciplined and fascinating contribution to the study of FOMC deliberations over time.
Laurence H. Meyer, Senior Managing Director, Macroeconomic Advisers
This is a fascinating book for students of committee decision-making. But there is a lot for economists too.
LSE Review of Books