In many countries, monetary policy decisions are made by committees. In the United States, these decisions are made by the Federal Reserve's Federal Open Market Committee (FOMC), which consists of the seven members of the Board of Governors and the presidents of the twelve district banks. This book examines the process by which the preferences of the FOMC's individual members are translated into collective policy choices. This focus on the aggregation of individual preferences into group decisions is unique and provides an important perspective on the evolution of monetary policy choices.
To study decision making by the FOMC, the authors have used both formal voting records and detailed transcripts and summaries of deliberations contained in the committee's Memoranda of Discussion and FOMC Transcripts. The latter sources have been used to construct data sets describing individual committee members' policy preferences for the 1970-1978 and 1987-1996 periods when the FOMC was chaired by Arthur Burns and Alan Greenspan, respectively. These data are used to estimate monetary policy reaction functions for individual Committee members and to explore the role of majoritarian pressures, pressures for consensus, and the power of the chairman in collective decision making. The rich anecdotal evidence found in the Memoranda of Discussion and FOMC Transcripts inspires the narrative approach taken in two chapters, on the influence of political pressure on FOMC deliberations and on the relevance of the time inconsistency problem for the rise of inflation in the 1970s.
About the Authors
Henry W. Chappell, Jr., is Professor of Economics at the University of South Carolina.
Rob Roy McGregor is Associate Professor of Economics at the University of North Carolina, Charlotte.
"Replacing speculation and opinion with powerful empirical results, this book cuts to the heart of the policy making process. It should be required reading for anyone wishing to understand the Federal Open Market Committee and the way in which monetary policy is made."
—W. Lee Hoskins, former president, Federal Reserve Bank of Cleveland
"This book does a great job of combining monetary and high-level econometrics, political science, and archival research to produce a compelling account of the political economy of Federal Reserve decision making."
—Nathaniel Beck, Department of Politics, New York University
"This highly original and intriguing study of Federal Open Market Committee decision making combines analytical inights and anecdotal evidence with extensive use of actual Committee transcripts, a true innovationin studying how policy is actually made. It will no doubt become a standard reference for understanding monetary policy in the United States."
—Allan Drazen, Jack and Lisa Yael Professor of Comparative Economics, Tel Aviv University, and Professor of Economics, University of Maryland