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Monetary policy committee size and inflation volatility

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  • Szilard Erhart
  • Harmen Lehment

    ()

  • Jose Vasquez Paz

Abstract

Previous research on the optimal size of a monetary policy committee (MPC) focused on theoretical analyses and experimental studies. These studies suggest that the ideal monetary policy committee may not have many more than five members. In this paper we conduct an empirical cross-country study to explore whether there is a link between the size of an MPC and inflation volatility. The analysis for 75 countries which have adopted MPCs provides some support for the above suggestion: countries with less than five MPC members tend to have larger deviations from trend inflation than MPCs with five members; raising the number of MPC members above five does not contribute to a further reduction in volatility.

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Bibliographic Info

Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 7 (2010)
Issue (Month): 4 (December)
Pages: 411-421

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Handle: RePEc:kap:iecepo:v:7:y:2010:i:4:p:411-421

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Web page: http://www.springerlink.com/link.asp?id=111059

Related research

Keywords: Monetary policy committee; Inflation volatility; E31; E42; E58;

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References

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  1. Helge Berger, 2006. "Optimal central bank design: Benchmarks for the ECB," The Review of International Organizations, Springer, vol. 1(3), pages 207-235, September.
  2. Judson, Ruth & Orphanides, Athanasios, 1999. "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, vol. 2(1), pages 117-38, April.
  3. Taylor, John B., 1981. "On the relation between the variability of inflation and the average inflation rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 57-85, January.
  4. Levi, Maurice D & Makin, John H, 1980. "Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 70(5), pages 1022-27, December.
  5. Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 105-16, January.
  6. Alan S. Blinder & John Morgan, 2007. "Leadership in Groups: A Monetary Policy Experiment," NBER Working Papers 13391, National Bureau of Economic Research, Inc.
  7. Anne Sibert, 2006. "Central Banking by Committee," DNB Working Papers 091, Netherlands Central Bank, Research Department.
  8. 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.
  9. Ari Aisen & Francisco Veiga, 2008. "Political instability and inflation volatility," Public Choice, Springer, vol. 135(3), pages 207-223, June.
  10. M. F. Bleaney, 1999. "The Disappearing Openness-Inflation Relationship," IMF Working Papers 99/161, International Monetary Fund.
  11. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  12. Rother, Philipp, 2004. "Fiscal policy and inflation volatility," Working Paper Series 0317, European Central Bank.
  13. Szilárd Erhart & Jose-Luis Vasquez-Paz, 2007. "Optimal monetary policy committee size: Theory and cross country evidence," MNB Working Papers 2007/6, Magyar Nemzeti Bank (the central bank of Hungary).
  14. Helge Berger & Tonny Lybek & Volker Nitsch, 2006. "Central Bank Boards Around the World," IMF Working Papers 06/281, International Monetary Fund.
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Citations

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Cited by:
  1. Helge Berger & Volker Nitsch, 2008. "Too Many Cooks? Committees in Monetary Policy," KOF Working papers 08-195, KOF Swiss Economic Institute, ETH Zurich.
  2. Szilárd Erhart & Jose Luis Vasquez-Paz, 2008. "Determinants of the size of a monetary policy committee: Theory and cross country evidence," Working Papers 2008-001, Banco Central de Reserva del Perú.
  3. Esteban Colla De Robertis & Last: Colla De Robertis, 2010. "Monetary Committee Size and Special Interest Influence," Documentos de Investigación - Research Papers 2, Centro de Estudios Monetarios Latinoamericanos, CEMLA.

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