FEDERAL RESERVE TRANSCRIPT PUBLICATION AND REGIONAL REPRESENTATION

I. INTRODUCTION This article looks at disagreement within the Federal Reserve's monetary policy committee, the Federal Open Market Committee or FOMC, following a change in transparency practices taken in 1993 to publish verbatim transcripts of FOMC meetings. The article examines whether disagreement during FOMC deliberations before and after the change in transparency practices provides evidence of regional heterogeneity. The structure of the FOMC is well known: the 12-member committee is composed of the seven board members on the Board of Governors in Washington DC and five of the presidents from the 12 Federal Reserve Banks (for additional detail, see Purposes and Functions, 2005). While the seven board members and the president of the Federal Reserve Bank of New York vote at every FOMC meeting, the other four voting presidents are determined according to a legislated annual rotation. (1) All 19 officials, whether voting or not, participate in the policy deliberations at each meeting. Each FOMC member has some, at least nominal, affiliation with one of the 12 Federal Reserve regions that were established at the time the Fed was founded. The bank presidents are appointed to their positions by the bank's board of directors (made up of representatives from local commercial banks and the public). Each board member also has some affiliation with one of the districts, and the law stipulates that no two board members can come from the same district. A number of authors have looked at a possible regional dimension to the FOMC's voting patterns. The early literature on this issue was concerned mainly with the differences between the votes of board members and bank presidents and ignored the regional affiliations of the former (Belden (1989), Havrilesky and Schweitzer (1990), and Gildea (1990, 1992) are examples of this work). More recent literature by Meade and Sheets (2005b) and Chappell, McGregor, and Vermilyea (2008) has provided statistical evidence that regional economic information (as measured by a regional unemployment rate) affects the votes cast by FOMC officials and the policy preferences they voice during meeting deliberations. These recent studies tell us that regional effects are important not only for bank presidents but for board members as well. In this article, I look at the decisions of FOMC members to see whether these decisions were influenced by regional effects before and after the major change in transparency practices that occurred in 1993. Before 1993, the FOMC published individual votes of committee members as well as summary minutes of meetings, but it did not publish full transcripts that would allow outside observers to determine exactly what individual committee members said about their policy preferences. Under pressure from the U.S. Congress during the fall of 1993 to increase the transparency of the monetary policy process, the FOMC agreed to release lightly edited transcripts of each meeting after a 5-yr delay. While many officials knew at the time they agreed to release the transcripts that FOMC meetings were tape-recorded, most thought that the recordings were used to prepare meeting minutes and then destroyed. Thus, because transcripts exist from a time when meeting participants did not know that their deliberations would be made public, it is possible to compare the meeting discussions of policymakers before 1993, when they believed that their remarks were private, and after 1993, when they knew that all statements would eventually be made public. Currently, complete transcripts are available for nearly all FOMC meetings from 1978 through 2003. Geraats (2002) identifies two possible effects of increased monetary policy transparency: a reduction or elimination of information asymmetries between the central bank and the public and an incentive for policymakers to behave strategically. The incentive effect can arise when policymakers have both a public and a private objective--for instance, a desire to make the "correct" policy decision as well as obtain reappointment or enhance future job prospects (Ottaviani and Sorensen, 2001, model this incentive effect for a committee that deliberates in public). …