The persuasive power of a Committee Chairman: Arthur Burns and the FOMC

Abstract

This paper investigates persuasion as a means of influence for the Federal Reserve Chairman in meetings of the Federal Open Market Committee (FOMC). Using textual records of FOMC meetings, federal funds rate targets have been recorded for Committee members who served in the Arthur Burns era (1970–1978). Results show that Burns-member differences in stated funds rate targets were lower when Burns made recommendations early in the meeting, consistent with the hypothesis that the Chairman is persuasive. Additional results show that members’ tendencies to respond to Burns's recommendations were related to their personal and political loyalties. Copyright Springer Science+Business Media, LLC 2007Federal Open Market Committee, FOMC, Monetary policy, Federal Reserve,

Appropriate monetary policy and forecast disagreement at the FOMC

“…The first part of the FOMC data set consists of the individual members' voting behavior when deciding on the Federal Funds Rate, as published in the Minutes and Monetary Policy Statements of the Fed. FOMC voting is a well-studied subject, and the voting behavior is found to be affected by many factors, e.g., by chairmanship, member status, professional background, perception of the state of the economy or partisanship (See, inter alia, Belden (1989), Havrilesky and Gildea (1991), Chappell, Jr., Havrilesky, and McGregor (1993), Chappell, Jr. and McGregor (2000), Chappell, Jr., Havrilesky, and McGregor (2004, 2007a, 2007b, Meade (2005), Meade and Sheets (2005), Gerlach-Kristen and Meade (2010), Besley, Meads, and Surico (2008), Gerlach-Kristen (2009), Eichler and Lähner (2014) and Hansen, McMahon, and Velasco Rivera (2014)).…”

“…The sample contains thus includes extra dates from the FOMC calendar if relevant.4 If the preferred basis point change of the dissenter is not explicitly stated, I assume it to be 25 basis points. Exemplarily, consider the period March 31 and July 1 of 1998, when Jerry L. Jordan of the Cleveland Fed dissented in three consecutive meetings, where his reasoning suggested an interest rate increase while the desired amount of increase remains unknown.5 See the Fed's FOMC background information under http://www.federalreserve.gov/ monetarypolicy/default.htm.6 See alsoChappell, Jr. et al (1993),Chappell, Jr. and McGregor (2000) andChappell, Jr., Havrilesky, and McGregor (2004, 2007a, 2007b for alternative approaches of generating individual interest rate series.…”

Deliberation and Learning in Monetary Policy Committees

“…Our data are derived from statements attributed to members in the policy go‐around. Following the procedures described in Chappell, McGregor, and Vermilyea (2004, 2005, 2007), we were able to identify members' desired federal funds rates directly from the information provided in the textual record in 1426 of 1782 (80.0%) member‐meeting observations, including both voting and non‐voting members of the committee 2 . Our sample includes all member‐meeting observations where a target rate could be coded.…”

Corporate Culture and Behaviour: A Survey

“…A recent paper that does use minutes is Schwartz-Ziv and Another related strand of research covers deliberations in monetary policy committees. Chappell, McGregor and Vermilyea (2007) use textual records of the Federal Open Market Committee (FOMC). When the chairman spoke early in the meetings, differences between FOMC members and the chairman regarding stated funds rate targets were smaller.…”