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Too Many Cooks? Committees in Monetary Policy

  • Helge Berger


    (*Free University Berlin, Department of Economics, Boltzmannstrasse 20, 14195 Berlin, Germany)

  • Volker Nitsc


    (Darmstadt University of Technology, Department of Law and Economics, Marktplatz 15, 64283 Darmstadt, Germany)

How many people should decide monetary policy? In this article, we take an empirical perspective on this issue and analyze the relationship between the number of monetary policy decision makers and monetary policy outcomes. Using a new data set that characterizes central bank monetary policy committees (MPCs) in more than 30 countries from 1960 through 2006, we find a U-shaped relationship between MPC size and inflation; our results suggest that the lowest level of inflation is reached at MPCs with an intermediate size of about five to nine members. Similar results are obtained for inflation variability. Other MPC characteristics also matter for monetary policy outcomes, though to a smaller degree. For instance, the membership composition of the MPC as well as the frequency of MPC membership turnover appears to affect economic variables.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2011)
Issue (Month): 2 (October)
Pages: 452-475

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Handle: RePEc:sej:ancoec:v:78:2:y:2011:p:452-475
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