Appointment Procedures and FOMC Voting Behavior

Abstract

An important issue for the conduct of monetary policy in the United States is whether the various appointment procedures of members of the Federal Open Market Committee help determine their voting behavior. It is usually asserted that the method by which district bank presidents are appointed leads to more independence and/or more behavior. Increased independence is generally believed to reduce suboptimal short-run manipulation of monetary policy, but at the cost of reducing the central bank's accountability to the country's short-run and longrun objectives. The social desirability of any potential differences in monetary policy resulting from these appointment procedures, and the optimality of discretionary policy in general, are not addressed in this paper, however. Instead, the effect on monetary policy of the different appointment procedures currently in place within the Federal Reserve System is examined. Does the increased independence that the district bank presidents supposedly possess produce significantly different monetary policy from that of the politically appointed board governors? Many studies have examined the effects various appointment procedures may have on voting at the FOMC, and the results have been somewhat mixed; Belden [2], Chappell, Havrilesky, and McGregor [3], Havrilesky and Gildea [6], and Puckett [8] find that bank presidents tend to vote for tighter policy than Board governors, while Tootell [10] finds no differences between the two groups. Most of the literature has concluded that in some unclearly defined way, and for no clear theoretical reason, the more independent district presidents are more conservative than the Board governors. In this paper, conservative is defined over several clear dimensions in order to test whether district presidents vote more conservatively than Board governors. Some slight variation in the voting behavior of bank presidents and board governors is found, but the causes of any dissimilarities are shown to be much different from those asserted in the earlier literature.