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Optimal Monetary Policy Committee Size: Theory and Cross Country Evidence

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  • Szilárd Erhart
  • Jose Luis Vasquez-Paz

Abstract

Theoretical and empirical studies of different sciences suggest that an optimal committee consists of roughly 5-9 members, although it can swell mildly under specific circumstances. This paper develops a conceptual model in order to analyze the issue in case of monetary policy formulation. The optimal monetary policy committee (MPC) size varies according to the uncertainty of MPC members’ information influenced by the size of the monetary zone and overall economic stability. Our conceptual model is backed up with econometric evidence using a survey of 85 countries. The MPC size of large monetary zones (EMU, USA, Japan) is close to the estimated optimal level, but there exist several smaller countries with too many or too few MPC members.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Advanced Studies Working Papers with number 439.

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Length: 33 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:kie:kieasw:439

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  1. Clare Lombardelli & James Proudman & James Talbot, 2002. "Committees versus individuals: an experimental analysis of monetary policy decision-making," Bank of England working papers 165, Bank of England.
  2. Alan S. Blinder & John Morgan, 2001. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," Working Papers 130, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Jan Marc Berk & Beata K. Bierut, 2003. "Committee Structure and its Implications for Monetary Policy Decision-making," Tinbergen Institute Discussion Papers 03-053/2, Tinbergen Institute.
  4. Helge Berger, 2006. "Optimal Central Bank Design: Benchmarks for the ECB," CESifo Working Paper Series 1697, CESifo Group Munich.
  5. Alan S. Blinder & John Morgan, 2007. "Leadership in Groups: A Monetary Policy Experiment," NBER Working Papers 13391, National Bureau of Economic Research, Inc.
  6. Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc.
  7. Sibert, Anne, 2006. "Central Banking by Committee," CEPR Discussion Papers 5626, C.E.P.R. Discussion Papers.
  8. Helge Berger & Tonny Lybek & Volker Nitsch, 2006. "Central Bank Boards Around the World," IMF Working Papers 06/281, International Monetary Fund.
  9. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
  10. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
  11. Gabel, Matthew J. & Shipan, Charles R., 2004. "A social choice approach to expert consensus panels," Journal of Health Economics, Elsevier, vol. 23(3), pages 543-564, May.
  12. Helge Berger & Volker Nitsch & Tonny Lybek, 2007. "Central Bank Boards around the World: Why does Membership Size Differ?," CESifo Working Paper Series 1897, CESifo Group Munich.
  13. JoAnne Morris & Tonny Lybek, 2004. "Central Bank Governance," IMF Working Papers 04/226, International Monetary Fund.
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Cited by:
  1. Roman Horváth & Kateøina Šmídková & Jan Zápal & Marek Rusnák, 2012. "Dissent Voting Behavior of Central Bankers: What Do We Really Know?," Working Papers IES 2012/05, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2012.
  2. Szilard Erhart & Harmen Lehment & Jose Vasquez Paz, 2010. "Monetary policy committee size and inflation volatility," International Economics and Economic Policy, Springer, vol. 7(4), pages 411-421, December.
  3. Alan S. Blinder & John Morgan, 2008. "Leadership in Groups: A Monetary Policy Experiment," International Journal of Central Banking, International Journal of Central Banking, vol. 4(4), pages 117-150, December.
  4. Berger, Helge & Nitsch, Volker, 2008. "Too many cooks? Committees in monetary policy," Discussion Papers 2008/8, Free University Berlin, School of Business & Economics.
  5. Helge Berger & Volker Nitsch & Tonny Lybek, 2007. "Central Bank Boards around the World: Why does Membership Size Differ?," CESifo Working Paper Series 1897, CESifo Group Munich.
  6. Jung, Alexander & Kiss, Gergely, 2012. "Preference heterogeneity in the CEE inflation-targeting countries," European Journal of Political Economy, Elsevier, vol. 28(4), pages 445-460.
  7. Alessandro Riboni & Francisco J. Ruge-Murcia, 2010. "Monetary Policy by Committee: Consensus, Chairman Dominance, or Simple Majority?," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 363-416, February.
  8. Alan S. Blinder, 2008. "On the design of monetary policy committees," Working Paper 2008/06, Norges Bank.
  9. Alan S. Blinder, 2008. "Making Monetary Policy by Committee," Working Papers 1051, Princeton University, Department of Economics, Center for Economic Policy Studies..

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