Do Career Concerns shape Monetary Policy: Evidence from Deliberations in the FOMC

• In Event: New Perspectives on Political Accountability

Abstract

We study how the career concerns of a committee of experts affect policy outcomes and political accountability under different appointment systems. To do this, we estimate a structural model of decision-making in the US Federal Reserve’s monetary policy committee (i.e., the Federal Open Market Committee). In the model, members care about matching their decision to an underlying state of the world and building a reputation. This reputation is given by the belief the principal forms about a member’s policy preferences. We consider the equilibrium of the model when policy recommendations are given behind closed doors and under public deliberation. We then estimate the preferences, expertise and the value of career concerns of governors (appointed by the President) and Fed presidents (appointed by a regional board of directors) by exploiting a natural experiment in the transparency of FOMC deliberations that allows us to observe individual policy recommendations both when committee members did and did not believe their deliberations would be public. We use our estimates to quantify how career concerns shape the incentives of FOMC members to recommend more hawkish and dovish policies and how these incentives translate into monetary policy outcomes.

Authors

• Gabriel Lopez-Moctezuma, California Institute of Technology

• Matias Iaryczower, Princeton University