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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. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
    2. 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.
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    7. 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.
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    12. Jérôme Vandenbussche, 2006. "Elements of Optimal Monetary Policy Committee Design," IMF Working Papers 06/277, International Monetary Fund.
    13. 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.
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    15. Tillmann, Peter, 2011. "Strategic forecasting on the FOMC," European Journal of Political Economy, Elsevier, vol. 27(3), pages 547-553, September.
    16. Berk, Jan Marc & Bierut, Beata K., 2009. "Monetary Policy Committees: meetings and outcomes," Working Paper Series 1070, European Central Bank.
    17. 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.
    18. 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.
    19. 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.
    20. 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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    Cited by:
    1. Demiralp, Selva & Kara, Hakan & Özlü, Pınar, 2012. "Monetary policy communication in Turkey," European Journal of Political Economy, Elsevier, vol. 28(4), pages 540-556.
    2. Maurin, Vincent & Vidal, Jean-Pierre, 2012. "Monetary policy deliberations: committee size and voting rules," Working Paper Series 1434, European Central Bank.
    3. Potrafke, Niklas, 2013. "Minority positions in the German Council of Economic Experts: A political economic analysis," Munich Reprints in Economics 19290, University of Munich, Department of Economics.
    4. Florin Cornel DUMITER & Horatiu Florin SOIM, 2012. "Bank of England’s monetary policy committee – assessing the importance and the implication upon monetary policy," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 61-67, May.

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