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Monetary Policy Committee Size and Inflation Volatility

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  • Szilárd Erhart
  • Harmen Lehment
  • Jose L. Vasquez Paz

Abstract

Previous research on the optimal size of a monetary policy committee (MPC) focused on theoretical analyses and experimental studies. These studies suggest that the ideal monetary policy committee may not have many more than five members. In this paper we conduct an empirical cross-country study to explore whether there is a link between the size of an MPC and inflation volatility. The analysis for 75 countries which have adopted MPCs provides some support for the above suggestion: countries with less than five MPC members tend to have larger deviations from trend inflation than MPCs with five members; raising the number of MPC members above five does not contribute to a further reduction in volatility.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1377.

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Length: 12 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:kie:kieliw:1377

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Keywords: Monetary Policy Committee; Inflation Volatility;

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References

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  1. Francisco José Veiga & Ari Aisen, 2006. "Political Instability and Inflation Volatility," IMF Working Papers 06/212, International Monetary Fund.
  2. Alan S. Blinder & John Morgan, 2007. "Leadership in Groups: A Monetary Policy Experiment," NBER Working Papers 13391, National Bureau of Economic Research, Inc.
  3. Judson, Ruth & Orphanides, Athanasios, 1999. "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, vol. 2(1), pages 117-38, April.
  4. Anne Sibert, 2006. "Central Banking by Committee," DNB Working Papers 091, Netherlands Central Bank, Research Department.
  5. Helge Berger & Tonny Lybek & Volker Nitsch, 2006. "Central Bank Boards Around the World: Why Does Membership Size Differ?," IMF Working Papers 06/281, International Monetary Fund.
  6. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  7. M. F. Bleaney, 1999. "The Disappearing Openness-Inflation Relationship - A Cross-Country Analysis of Inflation Rates," IMF Working Papers 99/161, International Monetary Fund.
  8. Helge Berger, 2006. "Optimal Central Bank Design: Benchmarks for the ECB," CESifo Working Paper Series 1697, CESifo Group Munich.
  9. Levi, Maurice D & Makin, John H, 1980. "Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 70(5), pages 1022-27, December.
  10. Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 105-16, January.
  11. Szilárd Erhart & Jose-Luis Vasquez-Paz, 2007. "Optimal monetary policy committee size: Theory and cross country evidence," MNB Working Papers 2007/6, Magyar Nemzeti Bank (the central bank of Hungary).
  12. Taylor, John B., 1981. "On the relation between the variability of inflation and the average inflation rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 57-85, January.
  13. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
  14. Rother, Philipp, 2004. "Fiscal policy and inflation volatility," Working Paper Series 0317, European Central Bank.
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Cited by:
  1. Berger, Helge & Nitsch, Volker, 2008. "Too many cooks? Committees in monetary policy," Discussion Papers 2008/8, Free University Berlin, School of Business & Economics.
  2. Szilárd Erhart & Jose Luis Vasquez-Paz, 2008. "Determinants of the size of a monetary policy committee: Theory and cross country evidence," Working Papers 2008-001, Banco Central de Reserva del Perú.
  3. Esteban Colla De Robertis & Last: Colla De Robertis, 2010. "Monetary Committee Size and Special Interest Influence," Documentos de Investigación - Research Papers 2, Centro de Estudios Monetarios Latinoamericanos, CEMLA.

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