How the Fed Manages its External Environment: An Analysis of Social Network and Topical Responses (1997-2012).

Early Working Draft Prepared for the 2013 Meeting of the American Political Science Association. Comments welcome. Existing political economy literature has established a number of ways in which the policy outputs of central banks can be affected by various political forces. What has not been investigated, however, is what resources central banks possess which might allow them to manage these pressures by using subtle, non-economic means of persuasion to advance their presumed objective of institutional autonomy. In this paper we seek to understand the ways in which the US Federal Reserve (`the Fed') reacts to its economic and political environment by adapting its engagement with its principles in the public and the US Congress. To do this, we create a new dataset of public speeches and Congressional testimony by senior Fed officials from 1996 to 2012. Using change point, network, and automated content analyses we aim to understand how pressures in the Fed's political environment affect the frequency of contact that the Fed has with different types of outside groups and what topics they discuss. Our analysis finds evidence that rather than managing its environment by directly engaging with groups that are important donors to their Congressional principals, the Fed uses a number of strategies to bolster its image as an apolitical and technocratic organization during crises. We also find that over the observation period Congress and the Fed were particularly responsive to changes in housing prices more than the statutory measures of Fed performance, especially unemployment. [ABSTRACT FROM AUTHOR]