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How committees reduce the volatility of policy rates

Author

Listed:
  • Etienne Farvaque
  • Norimichi Matsueda
  • Pierre-Guillaume Méon

Abstract

This paper relates the volatility of interest rates to the collective nature of monetary policymaking in monetary unions. Several decision rules are modelled, including hegemonic and democratic procedures, and also committees headed by a chairman. A ranking of decision rules in terms of the volatility of policy rates is obtained, showing that the presence of a chairman has a cooling e¤ect. However, members of a monetary union are better off under symmetric rules (voting, consensus, bargaining), unless they themselves chair the union. The results are robust to the inclusion of heterogeneities among members of the monetary union.

Suggested Citation

  • Etienne Farvaque & Norimichi Matsueda & Pierre-Guillaume Méon, 2007. "How committees reduce the volatility of policy rates," DULBEA Working Papers 07-11.RS, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:dul:wpaper:07-11rs
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    More about this item

    Keywords

    Monetary Policy Committees; Decision Procedures; Interest-rate; Monetary Union;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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