Abstract
Transparency has been posited as a channel through which monetary policy is made more effective. However, empirical studies of this question and other questions concerning the role of transparency have lacked access to a time-varying high-frequency measure of transparency. This paper presents a new measure of the transparency of Federal Reserve deliberations, derived from the documents that the Fed uses to record and summarize each of its meetings. The measure—the similarity of the minutes and transcripts of each Federal Open Market Committee (FOMC) meeting—is largely, though not entirely, shaped by FOMC leadership. Monetary policy shocks have about a 40 percent larger effect on nominal and real interest rates when the prevailing level of transparency is high, suggesting an important role for transparency in determining the efficacy of monetary policy. These effects are primarily driven by transparency about monetary policy strategies conditional on the state of the economy.
Authors
- Miguel Acosta
JEL codes
- E58
- H83
- D78
- D82