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Wednesday, October 26, 2005

Should FOMC Meetings be Televised?

With the talk about increasing the transparency of the Fed even further under Bernanke, should FOMC meetings be televised? Will Bernanke go that far? What is the downside of doing so? Ben Bernanke answers this question in a speech given at the American Economic Review Association Meetings in San Diego in 2004:

Other possibilities for improved transparency may exist. Importantly, as we think about these, we should not simply take the view that more information is always better. Indeed, irrelevant or badly communicated information may create more noise than signal; and some types of information provision--an extreme example would be televising FOMC meetings--risk compromising the integrity and quality of the policymaking process itself. Rather, the key question should be whether the additional information will improve the public's understanding of the Fed's objectives, economic assessments, and analytical framework, thus allowing them to make better inferences about how monetary policy is likely to respond to future developments in the economy.

So he is not in favor of televising meetings, a sentiment repeated here in an interview with the Minneapolis Fed. I'm not as sure as he is that the public would be misled by listening in on the process. However, William Poole, president of the St. Louis Fed, agrees with Bernanke. He is also worried about misleading the public, but that is not his main worry since he believes only those who would understand the proceeding would be interested in tuning in. He has concerns about confidentiality issues, and he is also worried about how behavior changes when the cameras are watching, for instance the difficulty in talking about policy that might increase unemployment. I am not so sure. Hypotheticals can be clearly elucidated, and if the merits of a particlar policy proposal cannot be articulated publicly in an understandable manner, perhaps it needs to be thought through again. Wouldn't forcing people to tighten up their arguments due to increased public scrutiny be helpful?:

Consider the possibility of televising FOMC meetings, so all can observe the proceedings. One issue is the mismatch between the technical level of the meeting and the knowledge of the audience. ... Monetary policy needs to be conducted at the highest possible technical level; a general audience is more likely to be confused than enlightened by watching an FOMC meeting live. Most viewers would get little out of watching a discussion of technical econometric issues ... and might well misinterpret such discussion. Perhaps we shouldn't worry too much about this issue, as the audience for an FOMC meeting would probably be pretty small after a few such episodes. I do not think we would compete very successfully with daytime television! Of course, a televised FOMC meeting ... could not include discussion of information obtained under pledge of confidentiality. Information from individual firms does play a useful role in policymaking, and the Fed could not obtain such information without maintaining its confidentiality. Moreover, there is ample evidence that people in televised meetings behave differently ... Some participants might have a tendency to grandstand for the audience, and to avoid discussing difficult or controversial issues. ... It is particularly difficult to analyze unpleasant possibilities in public, such as that a particular policy action might have the effect of increasing the risk of recession. ... During the time I’ve been in St. Louis, my impression is that FOMC deliberations are extremely open and that issues are thoroughly explored. I do not think that disclosing the transcript with a five-year lag inhibits my discussion, and believe that to be the case for most other members as well. I also believe that the transcript provides a valuable record for scholars and I strongly support the current system of releasing lightly edited transcripts. ... The current system of releasing the FOMC transcript with a five-year lag works well.

I am sold on the confidentiality argument, but remain skeptical that the public cannot digest the information properly or that the behavioral changes televising the proceedings would have on participants are unambiguously negative. Following the lead on the transcripts, a "lightly edited" video of the meetings released as soon as possible after FOMC meetings could address confidentiality issues, so that objection seems manageable as well. But I suspect I will be the cheese that stands alone on this one and that most will feel the negatives of televising the proceedings outweigh the positives.

    Posted by on Wednesday, October 26, 2005 at 12:02 PM in Economics, Fed Speeches, Monetary Policy | Permalink  TrackBack (0)  Comments (6)


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