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Too Many Cooks? Committees in Monetary Policy

Listed author(s):
  • 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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File URL: http://dx.doi.org/10.4284/0038-4038-78.2.452
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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
Contact details of provider: Web page: http://www.southerneconomic.org/

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  1. Szilárd Erhart & Jose-Luis Vasquez-Paz, 2007. "Optimal monetary policy committee size: Theory and cross country evidence," MNB Working Papers 2007/6, Magyar Nemzeti Bank (Central Bank of Hungary).
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  3. Alessandro Riboni & Francisco Ruge-Murcia, 2006. "The Dynamic (In)efficiency of Monetary Policy by Committee," 2006 Meeting Papers 206, Society for Economic Dynamics.
  4. Axel Dreher & Jakob de Haan & Jan-Egbert Sturm, 2007. "Does High Inflation Cause Central Bankers to Lose their Job? Evidence Based on a New Data Set," CESifo Working Paper Series 2045, CESifo Group Munich.
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  6. von Hagen, Jürgen & Brückner, Matthias, 2001. "Monetary policy in unknown territory: The European Central Bank in the early years," ZEI Working Papers B 18-2001, University of Bonn, ZEI - Center for European Integration Studies.
  7. Jan Marc Berk & Beata K. Bierut, 2004. "The effects of Learning in Interactive Monetary Policy Committees," MEB Series (discontinued) 2004-01, Netherlands Central Bank, Monetary and Economic Policy Department.
  8. Jan Marc Berk & Beata K. Bierut, 2004. "The Effects of Learning in Interactive Monetary Policy Committees," Tinbergen Institute Discussion Papers 04-029/2, Tinbergen Institute.
  9. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," NBER Working Papers 12876, National Bureau of Economic Research, Inc.
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  13. Fujiki, Hiroshi, 2005. "The Monetary Policy Committee and the Incentive Problem: A Selective Survey," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(S1), pages 37-82, October.
  14. Helge Berger, 2006. "Optimal central bank design: Benchmarks for the ECB," The Review of International Organizations, Springer, vol. 1(3), pages 207-235, September.
  15. Alan S. Blinder, 2007. "On the Design of Monetary Policy Committees," Working Papers 1030, Princeton University, Department of Economics, Center for Economic Policy Studies..
  16. Alan S. Blinder & John Morgan, 2007. "Leadership in Groups: A Monetary Policy Experiment," NBER Working Papers 13391, National Bureau of Economic Research, Inc.
  17. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
  18. Temple, Jonathan, 1998. "Central bank independence and inflation: good news and bad news," Economics Letters, Elsevier, vol. 61(2), pages 215-219, November.
  19. Lombardelli, Clare & James Proudman & James Talbot, 2003. "Committees versus individuals: an experimental analysis of monetary policy decision-making," Royal Economic Society Annual Conference 2003 142, Royal Economic Society.
  20. Sibert, Anne, 2006. "Central Banking by Committee," CEPR Discussion Papers 5626, C.E.P.R. Discussion Papers.
  21. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
  22. Helge Berger, 2002. "The ECB and Euro-Area Enlargement," IMF Working Papers 02/175, .
  23. Szilard Erhart & Harmen Lehment & Jose Vasquez Paz, 2010. "Monetary policy committee size and inflation volatility," International Economics and Economic Policy, Springer, vol. 7(4), pages 411-421, December.
  24. Jan-Egbert Sturm & Jakob de Haan, 2001. "Inflation in Developing Countries: Does Central Bank Independence Matter?," CESifo Working Paper Series 511, CESifo Group Munich.
  25. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, September.
  26. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-398, September.
  27. Gohlmann, Silja & Vaubel, Roland, 2007. "The educational and occupational background of central bankers and its effect on inflation: An empirical analysis," European Economic Review, Elsevier, vol. 51(4), pages 925-941, May.
  28. Berger, Helge & de Haan, Jakob & Eijffinger, Sylvester C W, 2000. "Central Bank Independence: An Update of Theory and Evidence," CEPR Discussion Papers 2353, C.E.P.R. Discussion Papers.
  29. Jérôme Vandenbussche, 2006. "Elements of Optimal Monetary Policy Committee Design," IMF Working Papers 06/277, .
  30. Haan, Jakob de & Kooi, Willem J., 2000. "Does central bank independence really matter?: New evidence for developing countries using a new indicator," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 643-664, April.
  31. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
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