Political Analysis Advance Access originally published online on October 4, 2008
Political Analysis 2008 16(4):404-427; doi:10.1093/pan/mpn005
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This article appears in the following Political Analysis issue: Special Issue: The Statistical Analysis of Political Text [View the issue table of contents]
Does Deliberation Matter in FOMC Monetary Policymaking? The Volcker Revolution of 1979
Bank of England
Department of Government, London School of Economics, Houghton Street, London, WC2A 2AE
e-mail: C.M.Schonhardt-Bailey@lse.ac.uk
In monetary policy, decision makers seek to influence the expectations of agents in ways that can avoid making abrupt, dramatic, and unexpected decisions. Yet in October 1979, Chairman Paul Volcker led the Federal Reserve's Federal Open Market Committee (FOMC) unanimously to shift its course in managing U.S. monetary policy, which in turn eventually brought the era of high inflation to an end. Although some analysts argue that "the presence and influence of one individual"—namely, Volcker—is sufficient to explain the policy shift, this overlooks an important feature of monetary policymaking. FOMC chairmen—however, omnipotent they may appear—do not act alone. They require the agreement of other committee members, and in the 1979 revolution, the decision was unanimous. How, then, did Chairman Volcker manage to bring a previously divided committee to a consensus in October 1979, and moreover, how did he retain the support of the committee throughout the following year in the face of mounting political and economic pressure against the Fed? We use automated content analysis to examine the discourse of the FOMC (with this discourse recorded in the verbatim transcripts of meetings). In applying this methodology, we assess the force of the arguments used by Chairman Volcker and find that deliberation in the FOMC did indeed "matter" both in 1979 and 1980. Specifically, Volcker led his colleagues in coming to understand and apply the idea of credible commitment in U.S. monetary policymaking.
Author's note: A previous version of this paper was presented at the 2006 Annual Meeting of the American Political Science Association. We are grateful for the suggestions of that audience and for those of our anonymous reviewers. Conflict of Interest: The views expressed in this paper are those of the authors and do not represent the views of the Bank of England. A web appendix with further analyses and methodological detail is provided as supplementary material on the Political Analysis website.