On the Optimality of Decisions made by Hub-and-Spokes Monetary Policy Committees
AbstractMost 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 two subgroups, as is the case in hub-and-spokes systems of central banks (e.g. the Fed or the ESCB), can eliminate this inefficiency whilst retaining the simple majority voting rule.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 027.
Date of creation: Feb 2005
Date of revision:
Find related papers by JEL classification:
- 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
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-MAC-2005-02-13 (Macroeconomics)
- NEP-MON-2005-02-13 (Monetary Economics)
- NEP-POL-2005-02-13 (Positive Political Economics)
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