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How monetary policy committees impact the volatility of policy rates

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Author Info
Etienne Farvaque () (Equippe - Universités de Lille, Faculté des Sciences Economiques et Sociales, Université de Lille 1, France)
Norimichi Matsueda () (School of Economics, Kwansei Gakuin University, Japan)
Pierre-Guillaume Méon () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.)

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Abstract

This paper relates the volatility of interest rates to the collective nature of monetary policymaking in monetary unions. Several decision rules are modelled, including hegemonic and democratic procedures, and also committees headed by a chairman. A ranking of decision rules in terms of the volatility of policy rates is obtained, showing that the presence of a chairman has a cooling effect. However, members of a monetary union are better off under symmetric rules (voting, averaging, bargaining), unless they themselves chair the union. The results are robust to the inclusion of heterogeneities among members of the monetary union.

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File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp08026.pdf
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File Function: First version, 2008
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Publisher Info
Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 08-026.RS.

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Length: 30 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:sol:wpaper:08-026

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Related research
Keywords: Monetary Policy Committees; Decision Procedures; Interest-rate; Monetary Union;

Other versions of this item:

Find related papers by JEL classification:
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  20. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2005. "Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033305.
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  22. 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. [Downloadable!] (restricted)
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  25. Meade, Ellen E & Sheets, D Nathan, 2005. "Regional Influences on FOMC Voting Patterns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 661-77, August.
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