The Role of the Bias in Crafting Consensus: FOMC Decision Making in the Greenspan Era

Henry Chappell, Rob Roy McGregor and Todd A. Vermilyea
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Rob Roy McGregor: Department of Economics, University of North Carolina at Charlotte
Todd A. Vermilyea: Supervision, Regulation, and Credit, Federal Reserve Bank of Philadelphia

International Journal of Central Banking, 2007, vol. 3, issue 2, 39-60

Abstract: We examine the role of the "bias" associated with a monetary policy directive - wording in the directive that concerns possible policy shifts in the period between one FOMC meeting and the next - in FOMC decision making in the Greenspan years. Previous studies have suggested that the bias provided the Chairman a tool for orchestrating Committee consensus. Our evidence shows that when the bias had meaningful implications for intermeeting funds rate changes (1987-92), it influenced voting by FOMC members. Biases both provoked and discouraged dissents, depending on the direction of the bias and the preferences of individual Committee members. When the bias did not have meaningful implications for intermeeting policy adjustments (1993-99), we find no evidence that it affected members' voting choices. Overall, our results are consistent with the view that FOMC members voted on the basis of a rational assessment of the policy content of proposed directives.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (19)

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