NEW YORK—Following today’s European Central Bank meeting, the ECB will release the minutes of its policy-setting committee for the first time ever. This on the heels of The Bank of England’s promise to publish transcripts of its monetary policy meetings, beginning in August 2015. These recent moves by policymakers come, in part, from much public criticism, especially during the recent financial crisis.

Even with the recent decisions and trend to become more transparent, there’s one big question that remains: will more public scrutiny necessarily lead to better policy decisions? A recent paper by Columbia Business School Professor Andrea Prat, who reviewed deliberations from 149 central bank meetings, helps answer that question.

“Clearly transparency promotes accountability which should improve policymakers’ behavior,” said Andrea Prat, the Richard Paul Richman Professor of Business at Columbia Business School. “But, the downside is that policymakers on public display might also be less willing to express their true views, which worsens the quality of debate. Whether transparency is ultimately desirable depends on both factors.”

Prat, along with co-authors Stephen Hansen at the Universitat Pompeu Fabra and Michael McMahon at the University of Warwick, explore this tradeoff in the paper, Transparency and Deliberation Within the FOMC: A Computational Linguistics Approach. Using state-of-the-art linguistics algorithms, the researchers compare transcripts of Federal Open Market Committee (FOMC) meetings before October 1993, when committee members thought they were in closed-door sessions and transcripts didn’t exist, to those after, when members knew transcripts existed and would be released. 

The study found that after transcripts were instituted, FOMC members not only changed their behavior, but also discussed more topics and displayed a greater knowledge of data and quantitative indicators when providing economic analysis. On the other hand, they also disengaged from discussions of the appropriate policy by making fewer statements, asking fewer questions, and discussing topics that were more similar to the Chairman’s. 

Importantly, newer committee members, who should be especially sensitive to protecting their reputations, became more influential in shaping debate.

“Rookie members may not have spoken as much after transparency, but when they did their views were more likely to be relevant, indicating a more informative overall debate,” Prat explains.

The research has influenced the Bank of England’s recent reforms, which are detailed in former Federal Reserve Governor Kevin Warsh’s independent report, Transparency and the Bank of England’s Monetary Policy Committee. The report discusses Prat’s analysis at length and concludes that it “motivates some of the Review’s ultimate recommendations,” including the decision to publish transcripts of meetings’ final day, but to keep preceding deliberations secret.

Prat highlights the conclusion that “central banks should find ways of managing disclosure to both give policymakers freedom to express their views and to promote public accountability.” 

To learn more about cutting-edge research being performed by Columbia Business School faculty members, please visit www.gsb.columbia.edu.

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