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Designing Monetary Policy Committees

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  • Volker Hahn

    () (Department of Economics, University of Konstanz, Germany)

Abstract

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.

Suggested Citation

  • Volker Hahn, 2012. "Designing Monetary Policy Committees," Working Paper Series of the Department of Economics, University of Konstanz 2012-23, Department of Economics, University of Konstanz.
  • Handle: RePEc:knz:dpteco:1223
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    Cited by:

    1. Hahn, Volker, 2014. "An argument in favor of long terms for central bankers," Economics Letters, Elsevier, vol. 122(2), pages 132-135.
    2. Carsten Hefeker & Blandine Zimmer, 2015. "Optimal Conservatism and Collective Monetary Policymaking under Uncertainty," Open Economies Review, Springer, vol. 26(2), pages 259-278, April.

    More about this item

    Keywords

    Monetary policy committees; term length; committee size; New Keynesian model;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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