Policy Shaping Politics: Monetary Policy Deliberations in Congressional Hearings, 1976-2008

LSE PSPE Working Paper No. 6

52 Pages Posted: 31 Aug 2009

See all articles by Andrew John Bailey

Andrew John Bailey

Bank of England; Bank of England - Prudential Regulation Authority

Cheryl Schonhardt-Bailey

London School of Economics & Political Science (LSE) - Department of Government

Date Written: March 29, 2009

Abstract

The focus of this paper is on the relationship of the Federal Reserve vis-à-vis Congress, and in particular on the motivations of Members of Congress (MCs) as they oversaw the policy making decisions of the Fed from 1976 to 2008. We examine the evolution of congressional oversight of the Fed in order to better understand the thinking of MCs. Our approach is unusual in that it measures statistically the deliberations of Members of Congress in the House and Senate banking committees during the oversight hearings on monetary policy for eight periods (61 hearings) from 1976 to 2008. The reason for choosing this span of the history of US monetary policy is that it coincides with the Great Inflation of the 1970s, the radical action taken to cure that problem (initiated by the so-called Volcker Revolution of 1979), the subsequent period of stability and low inflation and ends with the early days of the current financial crisis. This was a period during which monetary policy also came to the forefront as the tool of macroeconomic stabilization. Some of our findings include: (1) MCs generally showed little interest in the detail of monetary policy making, seemingly willing to leave these details to the Fed; (2) MCs were actively engaged in challenging the Fed in the areas of governance, accountability and transparency; (3) the degree of challenge from Congress to the Fed appears to be negatively related to the success of the Fed in pursuing low inflation and stable economic growth; and (4) MCs of both parties failed to devote much attention to financial stability and bank regulation in the 1990s and early 21st century.

Keywords: monetary policy, Federal Reserve, Congressional behavior, deliberation, banking, committee hearings

Suggested Citation

Bailey, Andrew John and Schonhardt-Bailey, Cheryl, Policy Shaping Politics: Monetary Policy Deliberations in Congressional Hearings, 1976-2008 (March 29, 2009). LSE PSPE Working Paper No. 6, Available at SSRN: https://ssrn.com/abstract=1078114 or http://dx.doi.org/10.2139/ssrn.1078114

Andrew John Bailey

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Bank of England - Prudential Regulation Authority

20 Moorgate
London, EC2R 6DA
United Kingdom

Cheryl Schonhardt-Bailey (Contact Author)

London School of Economics & Political Science (LSE) - Department of Government ( email )

Government Dept
London School of Economics
London WC2A 2AE
United Kingdom

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