Monetary Committee Size and Special Interest Influence
AbstractIn this paper we view monetary policy as the equilibrium outcome of a game between a central bank’s monetary policy committee (MPC) and two special interest groups (a financial sector and a political sector) who attempt to bias policy in their favor by offering contribution schedules contingent on policy outcomes, which is a standard approach to model influence, and has also been considered in monetary policy studies by other scholars. Under this framework, we show that equilibrium inflation rate and output are an average of the ones preferred by the committee and the special interest groups; thus, size of a monetary committee may play a role in the design of independent central banks (i.e. banks isolated from political pressures). The reason is that special interest group’s weights on equilibrium inflation rate under influence is lower the higher the size of the committee. We test the following implications of the model: i) societies with a higher concern on a low and stable inflation rate will appoint a larger committee; ii) larger committees deliver lower and more stable inflation rates.
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Bibliographic InfoPaper provided by Centro de Estudios Monetarios Latinoamericanos, CEMLA in its series Documentos de Investigación - Research Papers with number 2.
Date of creation: Jan 2010
Date of revision:
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
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