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Optimal Monetary Policy Committee Size: Theory and Cross Country Evidence

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Author Info
Szilárd Erhart
Jose Luis Vasquez-Paz

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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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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
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Handle: RePEc:kie:kieasw:439

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Find related papers by JEL classification:
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Helge Berger & Volker Nitsch & Tonny Lybek, 2007. "Central Bank Boards around the World: Why does Membership Size Differ?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. Helge Berger, 2006. "Optimal Central Bank Design: Benchmarks for the ECB," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Alan S. Blinder & John Morgan, 2007. "Leadership in Groups: A Monetary Policy Experiment," NBER Working Papers 13391, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Kerstin Gerling & Hans Peter Grüner & Alexandra Kiel & Elisabeth Schulte, 2003. "Information acquisition and decision making in committees: A survey," Working Paper Series 256, European Central Bank. [Downloadable!]
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  5. Anne Sibert, 2006. "Central Banking by Committee," International Finance, Blackwell Publishing, vol. 9(2), pages 145-168, 08. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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  8. JoAnne Morris & Tonny Lybek, 2004. "Central Bank Governance: A Survey of Boards and Management," IMF Working Papers 04/226, International Monetary Fund. [Downloadable!]
  9. 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.. [Downloadable!]
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  1. Helge Berger & Volker Nitsch, 2008. "Too Many Cooks? Committees in Monetary Policy," KOF Working papers 08-195, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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