ESRI Seminar: "Transparency and Communication within the FOMC: A computational linguistics approach"

Venue: Venue: ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2

Speaker: Michael McMahon, University of Warwick

The use of expert committees is widespread, especially within independent central banks. While the primary output of such monetary policy committees is ultimately an interest rate decision, the process whereby they reach these decisions involves lengthy deliberation and debate both among the experts forming the committee and between these experts and bank staff. In fact, one can fairly view the primary activity of committees as communication. We explore the issue of the optimal degree of transparency of the decision making committee. This is an issue that is of perennial importance and different central banks adopt different set-ups. For example, at present the ECB releases neither minutes nor transcripts; the Bank of England releases only minutes; and the FOMC releases both. While it is often argued that transparency is good for democratic accountability, there are fears that it might stifle communication within the committee. We exploit a natural experiment in the FOMC, together with computational linguistic models (particularly Latent Dirichlet Allocation (LDA)) to explore how greater transparency influences how policy makers communicate with each other in policy meetings. We find evidence that while transparency might induce members to engage less freely within the meeting, it also disciplines them to prepare more.