Transparency or Deception: What the Fed Was Saying in 2007

Central banks have embarked on a transition from relative secrecy to relative transparency over the last two decades. This has led researchers to investigate the ramifications of transparency on important economic outcomes. By and large, the results reported have been favorable, favorable with qualifications, or ambiguous. This paper examines the communications of officials from the Federal Reserve during 2007, the year between the end of the housing bubble and the beginning of the financial crisis. In contrast to previous finding, these communications are indicative of either deception, incompetence, or a combination of both.