Reputation in a Committee with Multiple Principals:
The Case of the FOMC
How do career concerns affect decision-making of public officials? In this paper, we
study this problem in the context of the Federal Open Market Committee (FOMC).
This setup is challenging for two reasons. On the one hand, the conflicting allure of
market opportunities and political advancement present a tradeoff for committee members between signaling competence and alignment to their political principal. On the
other hand, the collective decision-making setup implies that the actions of other members provide information to each Principal,, and affect the signaling value of the actions
of each member. As a result, conflicting mandates from different political principals
can affect the equilibrium behavior of all members. To tackle this problem, we combine
a structural approach with an unanticipated change in the information available to the
public about internal committee deliberations. We use internal deliberation transcripts
from 1970 to 2008 to (i) estimate the value that FOMC members give to market and
political reputation, (ii) quantify the probability of correct recommendations in the
Transparent and Opaque regimes, and (iii) assess the performance of the FOMC under
committee compositions not observed in the data.