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Monetary Policy Committees in Action: Is There Room for Improvement?

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  • Philipp Maier

Abstract

More than 80 central banks use a committee to take monetary policy decisions. The composition of the committee and the structure of the meeting can affect the quality of the decision making. In this paper we review economic, experimental, sociological and psychological studies to identify criteria for the optimal institutional setting of a monetary committee. These include the optimal size of the committee, measures to encourage independent thinking, a relatively informal structure of the meeting, and abilities to identify and evaluate individual members' performances. Using these criteria, we evaluate the composition and operation of monetary policy committees in various central banks. Our findings indicate that e.g. the monetary policy committee of the Bank of England follows committee best-practice, while the committee structure of other major central banks could be improved.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 07-6.

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Length: 35 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bca:bocawp:07-6

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Keywords: Central bank research; Monetary policy framework;

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References

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  1. Anne Sibert, 2006. "Central Banking by Committee," International Finance, Wiley Blackwell, vol. 9(2), pages 145-168, 08.
  2. Christopher J. Waller, 2000. "Policy Boards And Policy Smoothing," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 305-339, February.
  3. Nout Wellink & Bryan Chapple & Philipp Maier, 2002. "The role of national central banks within the European System of Central Banks: The example of De Nederlandsche Bank," Macroeconomics 0207006, EconWPA.
  4. Whyte, Glen, 1993. "Escalating Commitment in Individual and Group Decision Making: A Prospect Theory Approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 54(3), pages 430-455, April.
  5. Jérôme Vandenbussche, 2006. "Elements of Optimal Monetary Policy Committee Design," IMF Working Papers 06/277, International Monetary Fund.
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Cited by:
  1. Jürgen Stark & Alexander Jung & Francesco Paolo Mongelli, 2012. "Normal Times versus Crisis Times," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 10(1), pages 03-09, 04.
  2. Alessandro Riboni & Francisco Ruge-Murcia, 2006. "The Dynamic (In)efficiency of Monetary Policy by Committee," 2006 Meeting Papers 206, Society for Economic Dynamics.
  3. Hasan , Iftekhar & Mester, Loretta, 2008. "Central bank institutional structure and effective central banking: cross-country empirical evidence," Research Discussion Papers 29/2008, Bank of Finland.
  4. 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.
  5. Sirchenko, Andrei, 2010. "Policymakers' Votes and Predictability of Monetary Policy," University of California at San Diego, Economics Working Paper Series qt8qj3z3qg, Department of Economics, UC San Diego.
  6. Berk, Jan Marc & Bierut, Beata K., 2011. "Communication in a monetary policy committee," European Journal of Political Economy, Elsevier, vol. 27(4), pages 791-801.
  7. Philipp Maier & Eirc Santor, 2008. "Reforming the IMF: Lessons from Modern Central Banking," Discussion Papers 08-6, Bank of Canada.

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