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The Origins of Monetary Policy Disagreement: The Role of Supply and Demand Shocks

Author

Listed:
  • Carlos Madeira

    (Central Bank of Chile)

  • João Madeira

    (Department of Economics and Business Research Unit (BRU), ISCTE-IUL)

  • Paulo Santos Monteiro

    (University of York)

Abstract

We investigate how dissent in the Federal Open Market Committee (FOMC) is affected by structural macroeconomic shocks obtained using a medium-scale dynamic stochastic general equilibrium model. We find that dissent is less (more) frequent when demand (supply) shocks are the predominant source of inflation fluctuations. In addition, supply shocks are found to raise private sector forecasting uncertainty about the path of interest rates. Since supply shocks impose a tradeoff between inflation and output stabilization while demand shocks do not, our findings are consistent with heterogeneous preferences over the dual mandate among FOMC members as a driver of policy disagreement.

Suggested Citation

  • Carlos Madeira & João Madeira & Paulo Santos Monteiro, 2026. "The Origins of Monetary Policy Disagreement: The Role of Supply and Demand Shocks," The Review of Economics and Statistics, MIT Press, vol. 108(2), pages 355-371, March.
    • Handle: RePEc:tpr:restat:v:108:y:2026:i:2:p:355-371
    DOI: 10.1162/rest_a_01383
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    Cited by:

    1. is not listed on IDEAS
    2. Carlos Madeira, 2024. "The impact of financial crises on industrial growth: lessons from the last 40 years," BIS Working Papers 1214, Bank for International Settlements.
    3. Madeira, Carlos, 2025. "The impact of financial crises on industrial growth in the Middle East and North Africa," Global Finance Journal, Elsevier, vol. 65(C).
    4. Forbes, Kristin & Ha, Jongrim & Kose, M. Ayhan, 2024. "Rate Cycles," CEPR Discussion Papers 19272, C.E.P.R. Discussion Papers.
    5. Chadha, Jagjit S. & Macchiarelli, Corrado & Goel, Satyam & Hantzsche, Arno & Mellina, Sathya, 2026. "Deciphering Delphic guidance: The Bank of England and geopolitical uncertainty," Journal of International Money and Finance, Elsevier, vol. 162(C).
    6. Coroneo, Laura, 2026. "Forecasting for monetary policy," International Journal of Forecasting, Elsevier, vol. 42(1), pages 22-33.
    7. Tsang, Kwok Ping & Yang, Zichao, 2025. "Agree to disagree: Measuring hidden dissent in FOMC meetings," Journal of Economic Dynamics and Control, Elsevier, vol. 180(C).
    8. Kristin Forbes & Jongrim Ha & M. Ayhan Kose, 2026. "Heaven or Earth? The Evolving Role of Global Shocks for Domestic Monetary Policy," NBER Working Papers 34806, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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