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Designing Monetary Policy Committees

  • Volker Hahn

    ()

    (Department of Economics, University of Konstanz, Germany)

We integrate a monetary policy committee into a New Keynesian model to assess the consequences of the committee's institutional characteristics for welfare. First, we prove that uncertainty about the committee's future composition may be desirable. Second, we show that longer terms of central bankers lead to more effective output stabilization at the expense of higher inflation variability. Third, larger committees allow for more efficient stabilization of both output and inflation, provided that the pool of candidates is sufficiently diverse. Finally, longer terms induce the government to appoint more conservative central bankers, which is conducive to welfare.

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File URL: http://www.wiwi.uni-konstanz.de/workingpaperseries/WP_Hahn_23_12.pdf
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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-23.

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Length: 38 pages
Date of creation: 19 Nov 2012
Date of revision:
Handle: RePEc:knz:dpteco:1223
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  1. Kiel, Alexandra & Gerling, Kerstin & Schulte, Elisabeth & Grüner, Hans Peter, 2003. "Information acquisition and decision making in committees: a survey," Working Paper Series 0256, European Central Bank.
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  4. Anne Sibert, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series 226, CESifo Group Munich.
  5. RIBONI, Alessandro & RUGE-MURCIA, Francisco J., 2008. "Monetary Policy by Committee: Consensus, Chairman Dominance or Simple Majority?," Cahiers de recherche 02-2008, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. RIBONI, Alessandro & RUGE-MURCIA, Francisco J., 2007. "Preference Heterogeneity in Monetary Policy Committees," Cahiers de recherche 05-2007, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  7. Blinder, Alan S., 2007. "Monetary policy by committee: Why and how?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 106-123, March.
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  14. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
  15. Volker Hahn, 2009. "Transparency of Central Bank Preferences," German Economic Review, Verein für Socialpolitik, vol. 10, pages 32-49, 02.
  16. Bullard, James & Waller, Christopher J, 2004. "Central Bank Design in General Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 95-113, February.
  17. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
  18. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  19. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
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  21. Cox, Gary W. & Katz, Jonathan N., 1995. "Why Did The Incumbency Advantage In U.S. House Elections Grow?," Working Papers 939, California Institute of Technology, Division of the Humanities and Social Sciences.
  22. Eslava, Marcela, 2010. "Central bankers in government appointed committees," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 363-379, June.
  23. Hans Gersbach & Volker Hahn, 2009. "Voting Transparency in a Monetary Union," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 831-853, 08.
  24. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
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  26. Gilles Oudiz & Jeffrey Sachs, 1984. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Working Papers 1417, National Bureau of Economic Research, Inc.
  27. MacRae, C Duncan, 1977. "A Political Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 239-63, April.
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  29. 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.
  30. Farvaque, Etienne & Matsueda, Norimichi & Méon, Pierre-Guillaume, 2009. "How monetary policy committees impact the volatility of policy rates," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 534-546, December.
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  33. Stephen G. Cecchetti & Stefan Krause, 2002. "Central bank structure, policy efficiency, and macroeconomic performance: exploring empirical relationships," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 47-60.
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