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On the Optimality of Decisions

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  • Jan Marc Berk

    ()
    (De Nederlandsche Bank)

  • Beata Bierut

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

Most monetary policy committees decide on interest rates using a simple majority voting rule. Given the inherent heterogeneity of committee members, this voting rule is suboptimal in terms of the quality of the interest rate decision, but popular for other (political) reasons. We show that a clustering of committee members into 2 subgroups, as is the case in a hub-and spokes systems of central banks such as the Fed or the ESCB, can eliminate this suboptimality whilst retaining the majority voting rule.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-120/2.

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Date of creation: 09 Nov 2004
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Handle: RePEc:dgr:uvatin:20040120

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Web page: http://www.tinbergen.nl

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Keywords: central banks' policies; decision-making under uncertainty; committees; decision-making processes;

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References

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  9. Timothy Feddersen & Wolfgang Pesendorfer, 1996. "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts," Discussion Papers 1170, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. von Hagen, Jurgen & Suppel, Ralph, 1994. "Central bank constitutions for federal monetary unions," European Economic Review, Elsevier, vol. 38(3-4), pages 774-782, April.
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  13. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
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  15. Otto H. Swank & Phongthorn Wrasai, 2002. "Deliberation, Information Aggregation and Collective Decision Making," Tinbergen Institute Discussion Papers 02-006/1, Tinbergen Institute, revised 03 Dec 2002.
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Cited by:
  1. Jan Marc Berk & Beata K. Bierut, 2005. "Communication in Monetary Policy Committees," DNB Working Papers 059, Netherlands Central Bank, Research Department.
  2. Wojciech Charemza & Daniel Ladley, 2012. "MPC Voting, Forecasting and Inflation," Discussion Papers in Economics 12/23, Department of Economics, University of Leicester, revised Jan 2013.

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