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November 20, 2013


Today, the Federal Open Market Committee released the minutes from their last meeting. This monthly event is watched closely by many different people—ranging from Wall Street, Central Banks across the globe, and the Audit the Fed movement. For this occasion, Cheryl Schonhardt-Bailey, author of Deliberating American Monetary Policy explains that studying  the minutes of the FOMC is important, but to get a full understanding we must study the complete transcripts of the meeting.

Central bank information—for instance, the release of FOMC meeting minutes— is an important tool of policy. This flow of information from the committee to the public helps to shape expectations by providing greater clarity both in terms of exploring the decision at the last policy meeting and providing indications of the future direction of policy.

But what about our understanding of the thinking within the committee itself—particularly why and how individuals are persuaded to shift their positions on monetary policy? To understand the role of persuasion in the FOMC, committee transcripts (published with a 5 year lag) provide a more complete picture than minutes. But committee deliberations in these transcripts are inherently difficult to quantify. In Deliberating American Monetary Policy (DAMP),  I use automated textual analysis to study the verbatim transcripts of FOMC meetings and monetary policy oversight hearings in the two congressional banking committees (from 1976-2008). While many of us are familiar with “word cloud” visualizations of speeches and texts, the application of rigorous statistical analysis to textual data is more challenging. In DAMP, the entirety of the deliberations on monetary policy by FOMC members and by members of Congress are analysed.  We are able to capture (with statistical significance) not only the themes and arguments of committee members, but also link these themes to certain key characteristics of the individuals. These empirical data are then supplemented and supported by in-depth interviews with nearly two dozen key 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.

One finding of the book is that persuasion has an important—albeit subtle—role to play in FOMC meetings. Whereas the optimal policy literature generally overlooks the role of persuasion within the committee setting, this book clarifies where reasoned argument by one colleague may persuade others to change their minds. Reasoned argument is a regular feature of FOMC meetings; however, rarely do FOMC members change their minds in the space of a single meeting. Instead, both the empirical analysis and the interviews suggest that persuasion is a matter of planting seeds in one meeting, letting them take hold, and reaping the (persuaded) effects at a later time.

Deliberating American Monetary Policy helps us to understand why it is important to understand FOMC communication—but this should not be limited to minutes alone.

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