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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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  1. Ari Aisen & Francisco Veiga, 2008. "Political instability and inflation volatility," Public Choice, Springer, Springer, vol. 135(3), pages 207-223, June.
  2. Szilárd Erhart & Jose Luis Vasquez-Paz, 2007. "Optimal Monetary Policy Committee Size: Theory and Cross Country Evidence," Kiel Advanced Studies Working Papers, Kiel Institute for the World Economy 439, Kiel Institute for the World Economy.
  3. Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 27(1), pages 105-16, January.
  4. Anne Sibert, 2006. "Central Banking by Committee," DNB Working Papers, Netherlands Central Bank, Research Department 091, Netherlands Central Bank, Research Department.
  5. Levi, Maurice D & Makin, John H, 1980. "Inflation Uncertainty and the Phillips Curve: Some Empirical Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 1022-27, December.
  6. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 451-72, June.
  7. 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, Elsevier, vol. 15(1), pages 57-85, January.
  8. Alan S. Blinder & John Morgan, 2008. "Leadership in Groups: A Monetary Policy Experiment," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 4(4), pages 117-150, December.
  9. M. F. Bleaney, 1999. "The Disappearing Openness-Inflation Relationship," IMF Working Papers 99/161, International Monetary Fund.
  10. Helge Berger, 2006. "Optimal central bank design: Benchmarks for the ECB," The Review of International Organizations, Springer, Springer, vol. 1(3), pages 207-235, September.
  11. Rother, Philipp, 2004. "Fiscal policy and inflation volatility," Working Paper Series, European Central Bank 0317, European Central Bank.
  12. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(5), pages 789-811, October.
  13. Helge Berger & Tonny Lybek & Volker Nitsch, 2006. "Central Bank Boards Around the World," IMF Working Papers 06/281, International Monetary Fund.
  14. Judson, Ruth & Orphanides, Athanasios, 1999. "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 2(1), pages 117-38, April.
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Cited by:
  1. Szilárd Erhart & Jose Luis Vasquez-Paz, 2008. "Determinants of the size of a monetary policy committee: Theory and cross country evidence," Working Papers, Banco Central de Reserva del Perú 2008-001, Banco Central de Reserva del Perú.
  2. Helge Berger & Volker Nitsch, 2008. "Too many Cooks? Committees in Monetary Policy," CESifo Working Paper Series 2274, CESifo Group Munich.
  3. Esteban Colla De Robertis & Last: Colla De Robertis, 2010. "Monetary Committee Size and Special Interest Influence," Documentos de Investigación - Research Papers, Centro de Estudios Monetarios Latinoamericanos, CEMLA 2, Centro de Estudios Monetarios Latinoamericanos, CEMLA.

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