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Optimal monetary policy committee size: Theory and cross country evidence

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  • Szilárd Erhart

    ()
    (Magyar Nemzeti Bank)

  • Jose-Luis Vasquez-Paz

    (Banco Central de Reserva del Peru)

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 2006 survey of 85 countries. The survey is available for further research and published on the web. 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 Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2007/6.

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Length: 32 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mnb:wpaper:2007/6

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Keywords: monetary policy committe; mpc size; decision making.;

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References

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  1. Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008. "Central bank boards around the world: Why does membership size differ?," European Journal of Political Economy, Elsevier, vol. 24(4), pages 817-832, December.
  2. Berger, Helge, 2005. "Optimal central bank design: benchmarks for the ECB," Discussion Papers 2005/27, Free University Berlin, School of Business & Economics.
  3. Berk, J.M. & Bierut, B.K., 2003. "Committee structure and its implications for monetary policy decision-making," Serie Research Memoranda 0006, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  4. 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.
  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. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
  8. 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.
  9. Sibert, Anne, 2006. "Central Banking by Committee," CEPR Discussion Papers 5626, C.E.P.R. Discussion Papers.
  10. JoAnne Morris & Tonny Lybek, 2004. "Central Bank Governance: A Survey of Boards and Management," 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. RIBONI, Alessandro & RUGE-MURCIA, Francisco J., 2008. "Monetary Policy by Committee:Consensus, Chairman Dominance or Simple Majority?," Cahiers de recherche 2008-02, Universite de Montreal, Departement de sciences economiques.
  3. Alan S. Blinder & John Morgan, 2007. "Leadership in Groups: A Monetary Policy Experiment," NBER Working Papers 13391, National Bureau of Economic Research, Inc.
  4. Alan S. Blinder, 2007. "On the Design of Monetary Policy Committees," Working Papers 1030, Princeton University, Department of Economics, Center for Economic Policy Studies..
  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. Alan S. Blinder, 2008. "Making Monetary Policy by Committee," Working Papers 1051, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. Helge Berger & Volker Nitsc, 2011. "Too Many Cooks? Committees in Monetary Policy," Southern Economic Journal, Southern Economic Association, vol. 78(2), pages 452-475, October.
  8. Szilárd Erhart & Harmen Lehment & Jose L. Vasquez Paz, 2007. "Monetary Policy Committee Size and Inflation Volatility," Kiel Working Papers 1377, Kiel Institute for the World Economy.
  9. 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.

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