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Communication in a monetary policy committee

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  • Berk, Jan Marc
  • Bierut, Beata K.
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    Abstract

    We model monetary policy decisions as being taken by a group of heterogeneous policy makers, organized in a committee. Intuitively, when MPC members disclose and discuss the arguments behind their view on the interest rate, the quality of the collective decision should be higher compared to merely taking a simultaneous vote. We show that in some cases this intuition need not be correct. We also find that communication is a relatively effective way to implement the ‘knowledge pooling’ argument in favor of collective decision-making, compared to expanding the size of a committee. Moreover, decision-making with internal communication appears generally more robust in situations when heterogeneity of members is not adequately captured by decision-making rules.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Political Economy.

    Volume (Year): 27 (2011)
    Issue (Month): 4 ()
    Pages: 791-801

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    Handle: RePEc:eee:poleco:v:27:y:2011:i:4:p:791-801

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    Web page: http://www.elsevier.com/locate/inca/505544

    Related research

    Keywords: Committees; Deliberations; Correlated votes; Simple majority voting;

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    References

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    1. Goodfriend, Marvin, 1999. "The role of a regional bank in a system of central banks," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 51-71, December.
    2. Jérôme Vandenbussche, 2006. "Elements of Optimal Monetary Policy Committee Design," IMF Working Papers 06/277, International Monetary Fund.
    3. Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008. "Central bank boards around the world: Why does membership size differ?," European Journal of Political Economy, Elsevier, vol. 24(4), pages 817-832, December.
    4. Alessandro Riboni & Francisco J. Ruge-Murcia, 2010. "Monetary Policy by Committee: Consensus, Chairman Dominance, or Simple Majority?," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 363-416, February.
    5. Kiel, Alexandra & Gerling, Kerstin & Schulte, Elisabeth & Grüner, Hans Peter, 2003. "Information acquisition and decision making in committees: a survey," Working Paper Series 0256, European Central Bank.
    6. Peter Tillmann, 2010. "Strategic Forecasting on the FOMC," MAGKS Papers on Economics 201017, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Alan Blinder, 2006. "Monetary Policy by Committee: Why and How?," DNB Working Papers 092, Netherlands Central Bank, Research Department.
    8. Anne Sibert, 2006. "Central Banking by Committee," DNB Working Papers 091, Netherlands Central Bank, Research Department.
    9. Jan Marc Berk & Beata Bierut, 2008. "Monetary Policy Committees: meetings and outcomes," DNB Working Papers 184, Netherlands Central Bank, Research Department.
    10. Meade, Ellen E & Sheets, D Nathan, 2005. "Regional Influences on FOMC Voting Patterns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 661-77, August.
    11. Petra Gerlach-Kristen, 2009. "Outsiders at the Bank of England's MPC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1099-1115, 09.
    12. Jan Marc Berk & Beata K. Bierut, 2010. "Monetary Policy Committees: Meetings And Outcomes," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 569-588, October.
    13. Riboni, Alessandro & Ruge-Murcia, Francesco, 2010. "Monetary Policy by Committee : Consensus, Chairman Dominance or Simple Majority ?," Economics Papers from University Paris Dauphine 123456789/7683, Paris Dauphine University.
    14. Philipp Maier, 2007. "Monetary Policy Committees in Action: Is There Room for Improvement?," Working Papers 07-6, Bank of Canada.
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    17. Christopher Spencer, 2006. "The Dissent Voting Behaviour of Bank of England MPC Members," School of Economics Discussion Papers 0306, School of Economics, University of Surrey.
    18. Gerardi, Dino & Yariv, Leeat, 2007. "Deliberative voting," Journal of Economic Theory, Elsevier, vol. 134(1), pages 317-338, May.
    19. Ben-Yashar, Ruth C & Nitzan, Shmuel I, 1997. "The Optimal Decision Rule for Fixed-Size Committees in Dichotomous Choice Situations: The General Result," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 175-86, February.
    20. Christopher Spencer, 2006. "Reaction Functions of Bank of England MPC Members: Insiders versus Outsiders," School of Economics Discussion Papers 0606, School of Economics, University of Surrey.
    21. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
    22. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
    23. Peter Tillmann, 2010. "Monetary Policy Committees and Model Uncertainty," MAGKS Papers on Economics 201021, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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    Citations

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    Cited by:
    1. Maurin, Vincent & Vidal, Jean-Pierre, 2012. "Monetary policy deliberations: committee size and voting rules," Working Paper Series 1434, European Central Bank.
    2. Potrafke, Niklas, 2013. "Minority positions in the German Council of Economic Experts: A political economic analysis," European Journal of Political Economy, Elsevier, vol. 31(C), pages 180-187.
    3. Demiralp, Selva & Kara, Hakan & Özlü, Pınar, 2012. "Monetary policy communication in Turkey," European Journal of Political Economy, Elsevier, vol. 28(4), pages 540-556.

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