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On the Optimality of Decisions made by Hub-and-Spokes Monetary Policy Committees

  • Jan Marc Berk
  • Beata K. Bierut

Most monetary policy committees decide on interest rates using a simple majority voting rule. Given the inherent heterogeneity of committee members, this voting rule is suboptimal in terms of the quality of the interest rate decision, but popular for other (political) reasons. We show that a clustering of committee members into two subgroups, as is the case in hub-and-spokes systems of central banks (e.g. the Fed or the ESCB), can eliminate this inefficiency whilst retaining the simple majority voting rule.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 027.

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Date of creation: Feb 2005
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Handle: RePEc:dnb:dnbwpp:027
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  1. Hahn, Volker & Gersbach, Hans, 2001. "Voting Transparency and Conflicting Interests in Central Bank Councils," Discussion Paper Series 1: Economic Studies 2001,03, Deutsche Bundesbank, Research Centre.
  2. Nicola Persico, 2004. "Committee Design with Endogenous Information," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 165-191.
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  8. Timothy Feddersen & Wolfgang Pesendorfer, 1996. "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts," Discussion Papers 1170, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Hans Gersbach & Volker Hahn, 2008. "Should the individual voting records of central bankers be published?," Social Choice and Welfare, Springer, vol. 30(4), pages 655-683, May.
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  13. Goodfriend, Marvin, 1999. "The role of a regional bank in a system of central banks," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 51(1), pages 51-71, December.
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  17. Belden, Susan, 1989. "Policy Preferences of FOMC Members as Revealed by Dissenting Votes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 432-41, November.
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