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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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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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