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

This paper studies the theoretical and empirical implications of monetary policy making by committee under four different voting protocols. The protocols are a consensus model, where a supermajority is required for a policy change; an agenda-setting model, where the chairman controls the agenda; a dictator model, where the chairman has absolute power over the committee; 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 likelihood 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 fits actual policy decisions better than the alternative models. This suggests that despite institutional differences, committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions.