The Dynamic (In)efficiency of Monetary Policy by Committee
AbstractThis paper develops a model where the value of the monetary policy instrument is selected by a heterogenous committee engaged in a dynamic voting game. Committee members differ in their institutional power and, in certain states of nature, they also differ in their preferred instrument value. Preference heterogeneity and concern for the future interact to generate decisions that are dynamically ineffcient and inertial around the previously-agreed instrument value. This model endogenously generates autocorrelation in the policy variable and provides an explanation for the empirical observation that the nominal interest rate under the central bank’s control is infrequently adjusted.
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Bibliographic InfoPaper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 02-2006.
Length: 33 pages
Date of creation: 2006
Date of revision:
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Committees; status-quo bias; interest-rate smoothing; dynamic voting;
Other versions of this item:
- Alessandro Riboni & Francisco J. Ruge-Murcia, 2008. "The Dynamic (In)Efficiency of Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1001-1032, 08.
- Alessandro Riboni & Francisco Ruge-Murcia, 2006. "The Dynamic (In)efficiency of Monetary Policy by Committee," 2006 Meeting Papers 206, Society for Economic Dynamics.
- RIBONI, Alessandro & RUGE-MURCIA, Francisco, 2006. "The Dynamic (In)efficiency of Monetary Policy by Committee," Cahiers de recherche 2006-02, Universite de Montreal, Departement de sciences economiques.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
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