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The Dynamic (In)Efficiency of Monetary Policy by Committee




This 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 inefficient and inertial around the previously agreed instrument value. This model endogenously generates autocorrelation in the policy variable and helps explain the empirical observation that the distribution of actual interest rate changes has a mode of zero. Copyright (c) 2008 The Ohio State University.

Suggested Citation

  • 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, August.
  • Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:5:p:1001-1032

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    References listed on IDEAS

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    Cited by:

    1. repec:rsr:supplm:v:65:y:2017:i:1:p:93-105 is not listed on IDEAS
    2. Montoro, Carlos, 2007. "Monetary policy committees and interest rate smoothing," LSE Research Online Documents on Economics 19752, London School of Economics and Political Science, LSE Library.
    3. Helge Berger, 2006. "Optimal central bank design: Benchmarks for the ECB," The Review of International Organizations, Springer, vol. 1(3), pages 207-235, September.
    4. 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.
    5. repec:rsr:supplm:v:65:y:2017:i:6:p:154-162 is not listed on IDEAS
    6. Bowen, T. Renee & Chen, Ying & Eraslan, Hülya & Zápal, Jan, 2017. "Efficiency of flexible budgetary institutions," Journal of Economic Theory, Elsevier, vol. 167(C), pages 148-176.
    7. Carsten Hefeker & Blandine Zimmer, 2015. "Optimal Conservatism and Collective Monetary Policymaking under Uncertainty," Open Economies Review, Springer, vol. 26(2), pages 259-278, April.
    8. Farvaque, Etienne & Matsueda, Norimichi & Méon, Pierre-Guillaume, 2009. "How monetary policy committees impact the volatility of policy rates," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 534-546, December.
    9. 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.
    10. Eslava, Marcela, 2010. "Central bankers in government appointed committees," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 363-379, June.
    11. Claussen, Carl Andreas & Matsen, Egil & Røisland, Øistein & Torvik, Ragnar, 2012. "Overconfidence, monetary policy committees and chairman dominance," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 699-711.
    12. repec:rsr:supplm:v:65:y:2017:i:6:p:63-74 is not listed on IDEAS
    13. Roman Horváth & Katerina Šmídková & Jan Zápal, 2012. "Central Banks' Voting Records and Future Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 1-19, December.
    14. repec:rsr:supplm:v:65:y:2017:i:6:p:207-212 is not listed on IDEAS
    15. Hahn, Volker, 2016. "Designing monetary policy committees," Journal of Economic Dynamics and Control, Elsevier, vol. 65(C), pages 47-67.
    16. Jan Zapal, 2014. "Simple Markovian Equilibria in Dynamic Spatial Legislative Bargaining," CERGE-EI Working Papers wp515, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    17. Carlos Montoro, 2007. "Why Central Banks Smooth Interest Rates? A Political Economy Explanation," Working Papers 2007-003, Banco Central de Reserva del Perú.
    18. Helge Berger, 2006. "Unfinished business? The ECB reform ahead of euro area enlargement," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 7(4), pages 35-41, December.

    More about this item

    JEL classification:

    • 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, Operations, and Impact


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