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Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee

Overview

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 ...

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Overview

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.

The MIT Press

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What People Are Saying

From the Publisher

"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

The MIT Press

"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

The MIT Press

"In this pioneering work, Grossman and Helpman use tools of economic theory to provide new insights into lobbying and special-interest-group-politics.
The work is innovative and comprehensive, shedding light on a wide range of questions in a unified treatment. It is a must for anyone interested in special interest groups."--Allan Drazen, Jack and Lisa Yael Professor of Comparative
Economics, Tel Aviv University, and Professor of Economics, University of
Maryland

The MIT Press

"This book does a great job of combining monetary economics 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

The MIT Press

"This highly original and intriguing study of Federal Open Market
Committee decision making combines analytical insights and anecdotal evidence with extensive use of actual Committee transcripts, a true innovation in 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

The MIT Press

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Product Details

  • ISBN-13: 9780262033305
  • Publisher: MIT Press
  • Publication date: 1/3/2005
  • Pages: 336
  • Product dimensions: 6.00 (w) x 9.00 (h) x 1.00 (d)

Meet the Author

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.

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Table of Contents

1 Introduction 1
2 Institutional background 7
3 Analytical background 17
4 A long history of FOMC voting behavior : individual reaction functions and political influence on the monetary policy decision process 29
5 Data from the Memoranda of discussion and FOMC transcripts 57
6 Estimating reaction functions for individual FOMC members 71
7 Majority rule, consensus building, and the power of the chairman : Arthur Burns and the FOMC 97
8 FOMC decisions during the Greenspan years 119
9 Political influences on monetary policy decision making : evidence from the Memoranda and the Transcripts 139
10 Time inconsistency and the great inflation : evidence from the Memoranda and the Transcripts 161
11 Conclusions 183
App. 1 Voting data 193
App. 2 Estimation of individual reaction functions using dissent voting data 197
App. 3 Estimation of individual reaction functions using data from the Memoranda and the Transcripts 199
App. 4 Burns era preference profiles by meeting 205
App. 5 Greenspan era preference profiles by meeting 257
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