Media Briefings

The Dangers Of Increased Transparency In Monetary Policy-Making

  • Published Date: April 2008

Greater transparency of central bank policy-making – in which committee
deliberations are made more open to the public – may prevent the full and
frank discussion needed to make the best decisions.
That is the conclusion of new research by Professors Ellen Meade and David
, which compares discussions of the Federal Reserve Board’s
Open Markets Committee (FOMC) before and after 1993, when committee
members knew that all statements would eventually be made public.
Their study, which is published in the April 2008 issue of The Economic
, finds that after members knew that their deliberations would be made
public, they were less likely to challenge the then Fed chairman,
Alan Greenspan.
This suggests that greater transparency prevented free deliberation and may
have permitted Greenspan's views on interest rates to dominate US policymaking.
In the discussion of the current crisis in credit markets, some have
suggested that US interest rates were too low for too long.
The research looks at whether more information provided by the central bank
to the public about monetary policy deliberations can affect the deliberation
process itself and ultimately stifle useful debate. In other words, if policymakers
worry that the content of their discussions will be released to the
public, then they might hold back in those discussions for fear of looking
uninformed or incompetent.
If this happens, then monetary policy might be adversely affected. The
benefits of increased transparency would then need to be assessed against
the resultant damage to the policy process.
Since the mid-1990s, there has been a trend towards greater transparency in
economic policy-making – particularly with respect to monetary policy and the
adoption of inflation targets by many central banks.
Economists have argued that this greater transparency is beneficial, making it
easier to judge whether a central bank is committed to its announced policy
and improving policy effectiveness by facilitating the interpretation of
policy changes.
This research questions the view that all increases in transparency are
beneficial and asks whether some changes might have adverse
consequences. The particular aspect of transparency examined in this study
is the nature of deliberations about policy – whether they occur behind closed
doors or are open to the public.
Concern about the effects of open deliberations is not new. Speaking about
the secrecy rule that prevailed during the US Constitutional Convention of
1787, James Madison emphasised that full publicity would have made
members more reluctant to express their true opinions freely. Madison saw
secrecy as having been critical to the Convention’s ultimate success.
Fed policy-makers expressed similar concerns when, in 1993, the US
Congress pressured them to become more open about their decision-making
process. At issue was whether the Fed would agree to publish verbatim
transcripts from meetings of its monetary policy committee, the FOMC.
In Congressional testimony, Alan Greenspan argued against publication
saying that the FOMC ‘could not function effectively if participants had to be
concerned that their half-thought-through, but nonetheless potentially
valuable, notions would soon be made public’ even with a publication lag of
five years.
Greenspan noted further that the character of the meetings would change with
transcript publication, from lively, useful sessions to bland, sterile ones. In the
end, the Fed made the change and has been publishing the transcripts of its
meetings ever since.
This research employs a unique aspect of the situation and the transcripts
themselves to analyse whether the publication of meeting records has
affected the Fed’s deliberations. FOMC meetings were recorded from 1976 so
that the Fed staff could write meeting minutes. Policy-makers thought the
tapes were destroyed after the minutes were written. Thus, transcripts exist
from a time when policy-makers did not know that their deliberations would be
made public.
The authors compare deliberations before 1993, when Fed officials believed
their remarks were private, with deliberations after 1993, when officials knew
that all statements would eventually be made public. The analysis focuses on
the willingness of Fed policy-makers to express verbal disagreement with
Greenspan’s proposed policy before and after 1993.
The results provide clear evidence of a change in the character of FOMC
deliberations. This remains the case even after other potential influences on
officials’ views, such as current economic conditions and forecasts for
inflation, are taken into account.
The results are supported by a number of parallel observations about the
changing character of FOMC debate since 1993. While before 1993, FOMC
discussions were characterised by frequent ‘off the cuff’ remarks and
interruptions, since 1993 there has been an increase in pre-prepared
statements that may result in less real deliberation.
Notes for editors: ‘Publicity of Debate and the Incentive to Dissent: Evidence
from the US Federal Reserve’ by Ellen Meade and David Stasavage is
published in the April 2008 issue of The Economic Journal.
Ellen Meade is at American University, Washington DC. David Stasavage is
at New York University.
For further information: contact Ellen Meade on +1 202 885 3997 (email:; David Stasavage via email:; or Romesh Vaitilingam on 07768 661095 (email: