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Too Many Cooks? Committees in Monetary Policy

Listed author(s):
  • Helge Berger
  • Volker Nitsch

How many people should decide about monetary policy? In this paper, we take an empirical perspective on this issue, analyzing the relationship between the number of monetary policy decision-makers and monetary policy outcomes. Using a new data set that characterizes Monetary Policy Committees (MPCs) in more than 30 countries from 1960 through 2000, we find a U-shaped relation between the membership size of MPCs and inflation; our results suggest that the lowest level of inflation is reached at MPCs with about seven to ten members. Similar results are obtained for other measures, such as inflation variability and output growth. We also find that MPC size influences the success of monetary targeting regimes. In contrast, there is no evidence that either turnover rates of MPC members or the membership composition of MPCs affect economic outcomes.

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File URL: http://dx.doi.org/10.3929/ethz-a-005626058
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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-195.

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Length: 25 pages
Date of creation: Apr 2008
Handle: RePEc:kof:wpskof:08-195
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  1. Antonio Fatás & Ilian Mihov & Andrew K. Rose, 2007. "Quantitative Goals for Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1163-1176, 08.
  2. Gohlmann, Silja & Vaubel, Roland, 2007. "The educational and occupational background of central bankers and its effect on inflation: An empirical analysis," European Economic Review, Elsevier, vol. 51(4), pages 925-941, May.
  3. Clare Lombardelli & James Proudman & James Talbot, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
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  6. Helge Berger, 2006. "Optimal central bank design: Benchmarks for the ECB," The Review of International Organizations, Springer, vol. 1(3), pages 207-235, September.
  7. Alessandro Riboni & Francisco J. Ruge-Murcia, 2008. "The Dynamic (In)Efficiency of Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1001-1032, 08.
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  11. Jérôme Vandenbussche, 2006. "Elements of Optimal Monetary Policy Committee Design," IMF Working Papers 06/277, International Monetary Fund.
  12. Szilard Erhart & Harmen Lehment & Jose Vasquez Paz, 2010. "Monetary policy committee size and inflation volatility," International Economics and Economic Policy, Springer, vol. 7(4), pages 411-421, December.
  13. Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008. "Central bank boards around the world: Why does membership size differ?," European Journal of Political Economy, Elsevier, vol. 24(4), pages 817-832, December.
  14. Alan S. Blinder, 2007. "On the Design of Monetary Policy Committees," Working Papers 1030, Princeton University, Department of Economics, Center for Economic Policy Studies..
  15. Anne Sibert, 2006. "Central Banking by Committee," International Finance, Wiley Blackwell, vol. 9(2), pages 145-168, 08.
  16. Temple, Jonathan, 1998. "Central bank independence and inflation: good news and bad news," Economics Letters, Elsevier, vol. 61(2), pages 215-219, November.
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  19. Dreher, Axel & Sturm, Jan-Egbert & de Haan, Jakob, 2008. "Does high inflation cause central bankers to lose their job? Evidence based on a new data set," European Journal of Political Economy, Elsevier, vol. 24(4), pages 778-787, December.
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  25. repec:pri:cepsud:153blinder is not listed on IDEAS
  26. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
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  28. Haan, Jakob de & Kooi, Willem J., 2000. "Does central bank independence really matter?: New evidence for developing countries using a new indicator," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 643-664, April.
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  30. Jan Marc Berk & Beata K. Bierut, 2004. "The Effects of Learning in Interactive Monetary Policy Committees," Tinbergen Institute Discussion Papers 04-029/2, Tinbergen Institute.
  31. Helge Berger, 2002. "The ECB and Euro-Area Enlargement," IMF Working Papers 02/175, International Monetary Fund.
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