13 - A theory of FOMC dissent voting with evidence from the time series

Summary

The main purpose of this chapter is to develop and test a theory that predicts the voting of individual Federal Open Market Committee (FOMC) members who dissent, on the side of either tightness or ease, from the Committee's regular monetary policy directives. It is initially assumed that such a directive reflects the monetary policy desired by a majority of the Committee and that the Committee controls monetary policy. It is further assumed that the central government, specifically the administration, has a strong influence on monetary policy (Havrilesky 1987, 1988) through ongoing communication with the Committee (or its chair) and through FOMC appointments (Havrilesky and Gildea 1989).

The theory predicts individual dissenting votes as a function of the difference between each of the dissenter's “characteristics” and the mean value for that characteristic for all FOMC members. Each characteristic is a measure of the member's “career proximity” to the central government. The desired monetary stabilization policy of the central government is assumed to have a time-consistent inflationary bias. Presidential appointments of 7 of the 12 members of the FOMC are assumed to reflect several objectives. These objectives include attaining politically optimal stabilization policy, paying political debts, building antiinflationary credibility, and satisfying the representational demands of constituents (Woolley 1984; Havrilesky and Gildea 1989). Because of these multiple objectives, the FOMC as a whole will have a lesser inflationary bias than will the central government. Therefore, members whose career-proximity characteristics are closer to the central government than are the FOMC means for those characteristics will tend to dissent on the side of ease.