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Committee structure and its implications for Monetary policy decision-making

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  • Jan Marc Berk
  • Beata K. Bierut

Abstract

We investigate the implications for he setting of interest rates when monetary policy decisions are taken by a committee, in which a subset of members may meet prior to the voting in the commitee and therefore has the possibility to reach consensus ex ante to vote unanimously ex post. We allow for different committee sizes, various voting rules and differences in skills among committee members. We find that the size of the committee is much less important in determining the degree of interest rate inertia than the skills of committee members. Moreover, prior interaction of a subgroup only has a minor effect on the setting of interest rates by the committee, provided that members on average are equally skilled and voting takes place using a simple majority rule. If either of those assumptions are relaxed, prior interaction has substantial effects on the setting of interest rates. In addition, prior interaction increases the optimal size of the Committee, ceteris paribus.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-05.

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Date of creation: Jun 2003
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Handle: RePEc:dnb:mebser:2003-05

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Keywords: monetary policy; interest rates; voting;

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  1. Marvin Goodfriend, 2000. "The role of a regional bank in a system of central banks," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Win, pages 7-25.
  2. Gildea, John A, 1992. "The Regional Representation of Federal Reserve Bank Presidents," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 24(2), pages 215-25, May.
  3. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
  4. 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.
  5. Belden, Susan, 1989. "Policy Preferences of FOMC Members as Revealed by Dissenting Votes," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 21(4), pages 432-41, November.
  6. Ellen E. Meade & D. Nathan Sheets, 2002. "Regional influences on U.S. monetary policy: some implications for Europe," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 721, Board of Governors of the Federal Reserve System (U.S.).
  7. Ben-Yashar, Ruth C & Nitzan, Shmuel I, 1997. "The Optimal Decision Rule for Fixed-Size Committees in Dichotomous Choice Situations: The General Result," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 175-86, February.
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Cited by:
  1. Jan Marc Berk & Beata K. Bierut, 2004. "The Effects of Learning in Interactive Monetary Policy Committees," Tinbergen Institute Discussion Papers 04-029/2, Tinbergen Institute.
  2. Maurin, Vincent & Vidal, Jean-Pierre, 2012. "Monetary policy deliberations: committee size and voting rules," Working Paper Series, European Central Bank 1434, European Central Bank.
  3. Szilárd Erhart & Jose-Luis Vasquez-Paz, 2007. "Optimal monetary policy committee size: Theory and cross country evidence," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2007/6, Magyar Nemzeti Bank (the central bank of Hungary).
  4. Piotr Stanek, 2004. "How to assess proposals for enlargement reform of the European Central Bank," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 209-239.
  5. Carlos Montoro, 2007. "Monetary policy committees and interest rate smoothing," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19752, London School of Economics and Political Science, LSE Library.

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