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Making Monetary Policy by Committee

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  • Alan S. Blinder

    (Princeton University)

Abstract

I was Vice Chairman of the Federal Reserve Board while I was preparing my Marshall Lectures for delivery at Cambridge in 1995. So I asked the Board staff to research what had been written about making monetary policy by committees—as opposed to by individuals. Although they were (and remain) a knowledgeable and thorough bunch, they unearthed almost nothing. So when I delivered the Robbins Lectures at the London School of Economics the following year,1 this is what I concluded on the subject: My own hunch is that, on balance, the additional monetary policy inertia imparted by group decisionmaking provides a net benefit to society… But my main point is simpler: My experience as a member of the FOMC left me with a strong feeling that the theoretical fiction that monetary policy is made by a single individual maximizing a well-defined preference function misses something important. In my view, monetary theorists should start paying some attention to the nature of decisionmaking by committee, which is rarely mentioned in the academic literature. (Blinder (1998), p. 22) I made reference in that lecture to only one paper on the subject, Faust’s (1996) clever model of the seemingly-odd construction of the FOMC, though I should have cited Waller’s (1992) earlier work as well. (Mea culpa.) My point is that, up to then, there had been hardly any research on committee decisionmaking. Fortunately, that is no longer the case. By the time of my three Okun lectures at Yale in 2002 (Blinder (2004)), the subject merited a whole lecture, including references to about ten papers on the subject—and I missed some. (Mea culpa again.) The literature has continued to grow since then, including seven papers at a Netherlands Central Bank conference in 2005 and eleven papers at a Bank of Norway conference last year. The study of central banking by committee thus appears to be a growth industry, albeit a small one.

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Bibliographic Info

Paper provided by Princeton University, Department of Economics, Center for Economic Policy Studies. in its series Working Papers with number 1051.

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Date of creation: Jun 2008
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Handle: RePEc:pri:cepsud:167blinder

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  1. Alan S. Blinder, 2005. "Monetary Policy by Committee: Why and How?," Working Papers 84, Princeton University, Department of Economics, Center for Economic Policy Studies..
  2. Chappell, Henry W, Jr & McGregor, Rob Roy & Vermilyea, Todd, 2004. "Majority Rule, Consensus Building, and the Power of the Chairman: Arthur Burns and the FOMC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 407-22, June.
  3. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
  4. Szilárd Erhart & Jose Luis Vasquez-Paz, 2007. "Optimal Monetary Policy Committee Size: Theory and Cross Country Evidence," Kiel Advanced Studies Working Papers 439, Kiel Institute for the World Economy.
  5. Anne Sibert, 2006. "Central Banking by Committee," DNB Working Papers 091, Netherlands Central Bank, Research Department.
  6. Waller, Christopher J., 1992. "A bargaining model of partisan appointments to the central bank," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 411-428, June.
  7. Philippe Moutot & Alexander Jung & Francesco Paolo Mongelli, 2008. "The working of the eurosystem - monetary policy preparations and decision-making – selected issues," Occasional Paper Series 79, European Central Bank.
  8. Christina D. Romer & David H. Romer, 2003. "Choosing the Federal Reserve Chair: Lessons from History," NBER Working Papers 10161, National Bureau of Economic Research, Inc.
  9. Clare Lombardelli & James Proudman & James Talbot, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
  10. Faust, Jon, 1996. "Whom can we trust to run the Fed? Theoretical support for the founders' views," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 267-283, April.
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Cited by:
  1. Christian Pierdzioch & Jan-Christoph Rülke & Peter Tillmann, 2013. "Using forecasts to uncover the loss function of FOMC members," MAGKS Papers on Economics 201302, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Yann Braouezec, 2010. "Committee, Expert Advice, and the Weighted Majority Algorithm: An Application to the Pricing Decision of a Monopolist," Computational Economics, Society for Computational Economics, vol. 35(3), pages 245-267, March.
  3. Johnson, Eric D. & Ellis, Michael A. & Kotenko, Diana, 2012. "Consensus building on the FOMC: An analysis of end of tenure policy preferences," Economics Letters, Elsevier, vol. 117(1), pages 368-371.
  4. Petra Gerlach-Kristen & Ellen E. Meade, 2010. "Is There a Limit on FOMC Dissents? Evidence from the Greenspan Era," Working Papers 2010-16, American University, Department of Economics.
  5. Svensson, Lars E O, 2009. "Transparency under Flexible Inflation Targeting: Experiences and Challenges," CEPR Discussion Papers 7213, C.E.P.R. Discussion Papers.
  6. Muchlinski, Elke, 2010. "Metaphern, Begriffe und Bedeutungen: Das Beispiel internationale monetäre Institutionen," Discussion Papers 2010/14, Free University Berlin, School of Business & Economics.
  7. Tillmann, Peter, 2011. "Strategic forecasting on the FOMC," European Journal of Political Economy, Elsevier, vol. 27(3), pages 547-553, September.

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