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Monetary Policy by Committee: Consensus, Chairman Dominance or Simple Majority?

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  • RIBONI, Alessandro
  • RUGE-MURCIA, Francisco J.

Abstract

This paper studies the theoretical and empirical implications of monetary policy making by committee under three different voting protocols. The protocols are a consensus model, where super-majority is required for a policy change, an agenda-setting model, where the chairman controls the agenda, and a simple majority model, where policy is determined by the median member. These protocols give preeminence to different aspects of the actual decision making process and capture the observed heterogeneity in formal procedures across central banks. The models are estimated by Maximum Likehood using interest rate decisions by the committees of five central banks, namely the Bank of Canada, the Bank of England, the European Central Bank, the Swedish Riksbank, and the U.S. Federal Reserve. For all central banks, results indicate that the consensus model is statically superior to the alternative models. This suggests that despite institutionnal differences, committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions.

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Bibliographic Info

Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 02-2008.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mtl:montec:02-2008

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Keywords: Committees; voting models; status-quo bias; median voter;

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  1. Arnab Bhattacharjee & Sean Holly, 2006. "Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC," CDMA Working Paper Series 200612, Centre for Dynamic Macroeconomic Analysis.
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