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Meade and Stasavage on the downsides of open decision making at the Fed

Abstract: Transparency in committee decision making may have clear benefi…ts by making committee members more accountable to outside observers, whether these observers are shareholders, voters, or market participants. While recent literature generally focuses on the advantages of transparency, in this paper we consider one potential cost: the possibility that publishing detailed records of deliberations will make members of a committee more reluctant to other dissenting opinions. Drawing on the literature on expert advisors with “career concerns”, we construct a model that compares incentives for members of a committee to voice dissent when deliberations occur in public, and when they occur in private. We then test the implications of the model using an original dataset based
on deliberations of the Federal Reserve’s Federal Open Market Committee, asking whether the FOMC’s decision in 1993 to begin releasing full transcripts of its meetings has altered incentives for participants to voice dissenting opinions. We …find evidence that transcript publication has stifl‡ed the FOMC’’s debate over short-term interest rates. Our fi…ndings have implications both for monetary policy institutions, as well as for more general debates about the effect of transparency in agency relationships.

Ellen Meade and David Stasavage (2008), “Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve,” The Economic Journal, forthcoming. Available here.

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