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Committee structure and its implications for Monetary policy decision-making

  • Jan Marc Berk
  • Beata K. Bierut

We investigate the implications for he setting of interest rates when monetary policy decisions are taken by a committee, in which a subset of members may meet prior to the voting in the commitee and therefore has the possibility to reach consensus ex ante to vote unanimously ex post. We allow for different committee sizes, various voting rules and differences in skills among committee members. We find that the size of the committee is much less important in determining the degree of interest rate inertia than the skills of committee members. Moreover, prior interaction of a subgroup only has a minor effect on the setting of interest rates by the committee, provided that members on average are equally skilled and voting takes place using a simple majority rule. If either of those assumptions are relaxed, prior interaction has substantial effects on the setting of interest rates. In addition, prior interaction increases the optimal size of the Committee, ceteris paribus.

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Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-05.

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Date of creation: Jun 2003
Date of revision:
Handle: RePEc:dnb:mebser:2003-05
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  1. Marvin Goodfriend, 2000. "The role of a regional bank in a system of central banks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 7-25.
  2. Gildea, John A, 1992. "The Regional Representation of Federal Reserve Bank Presidents," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 215-25, May.
  3. Ben-Yashar, Ruth C & Nitzan, Shmuel I, 1997. "The Optimal Decision Rule for Fixed-Size Committees in Dichotomous Choice Situations: The General Result," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 175-86, February.
  4. Ellen E. Meade & D. Nathan Sheets, 2002. "Regional Influences on U.S. Monetary Policy: Some Implications for Europe," CEP Discussion Papers dp0523, Centre for Economic Performance, LSE.
  5. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
  6. 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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