Using German microdata and a quasi-natural experiment, we provide evidence on how households respond to an increase in uncertainty. We find that household saving increases significantly following the increase in political uncertainty observed in the run-up to the 1998 German general election. We also find evidence of a labor supply response by workers who can use the margin offered by part-time employment. Our results are suggestive of the economic effects of “wars of attrition”: when political disagreement leads to delays in adopting a reform or the possibility that earlier reforms may be revoked, the increased uncertainty could slow the economy.

We provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model. First, all policymaker types should become less tough on inflation over time and secondly, types that weigh output more should have a more pronounced shift. Voting data from the Bank of England's Monetary Policy Committee strongly support both predictions. Counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle, and improves the committee designer's welfare. Implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes.

How does transparency, a key feature of central bank design, affect monetary policy makers’ deliberations? Theory predicts a positive discipline effect and negative conformity effect. We empirically explore these effects using a natural experiment in the Federal Open Market Committee in 1993 and computational linguistics algorithms. We first find large changes in communication patterns after transparency. We then propose a difference-in-differences approach inspired by the career concerns literature, and find evidence for both effects. Finally, we construct an influence measure that suggests the discipline effect dominates.