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Optimal monetary policy committee size: Theory and cross country evidence

  • Szilárd Erhart

    ()

    (Magyar Nemzeti Bank)

  • Jose-Luis Vasquez-Paz

    (Banco Central de Reserva del Peru)

Theoretical and empirical studies of different sciences suggest that an optimal committee consists of roughly 5-9 members, although it can swell mildly under specific circumstances. This paper develops a conceptual model in order to analyze the issue in case of monetary policy formulation. The optimal monetary policy committee (MPC) size varies according to the uncertainty of MPC members’ information influenced by the size of the monetary zone and overall economic stability. Our conceptual model is backed up with econometric evidence using a 2006 survey of 85 countries. The survey is available for further research and published on the web. The MPC size of large monetary zones (EMU, USA, Japan) is close to the estimated optimal level, but there exist several smaller countries with too many or too few MPC members.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/MNB/Kiadvanyok/mnbhu_mnbfuzetek/mnbhu_wp_2007_6/wp_2007_6.pdf
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Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2007/6.

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Length: 32 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mnb:wpaper:2007/6
Contact details of provider: Web page: http://www.mnb.hu/
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  1. Sibert, Anne, 2006. "Central Banking by Committee," CEPR Discussion Papers 5626, C.E.P.R. Discussion Papers.
  2. Gabel, Matthew J. & Shipan, Charles R., 2004. "A social choice approach to expert consensus panels," Journal of Health Economics, Elsevier, vol. 23(3), pages 543-564, May.
  3. Clare Lombardelli & James Proudman & James Talbot, 2002. "Committees versus individuals: an experimental analysis of monetary policy decision-making," Bank of England working papers 165, Bank of England.
  4. Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008. "Central Bank boards around the world: why does membership size differ?," Discussion Papers 2008/5, Free University Berlin, School of Business & Economics.
  5. Jan Marc Berk & Beata K. Bierut, 2003. "Committee structure and its implications for Monetary policy decision-making," MEB Series (discontinued) 2003-05, Netherlands Central Bank, Monetary and Economic Policy Department.
  6. Alan S. Blinder & John Morgan, 2001. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," Working Papers 130, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. Berk, J.M. & Bierut, B.K., 2003. "Committee structure and its implications for monetary policy decision-making," Serie Research Memoranda 0006, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  8. 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.
  9. JoAnne Morris & Tonny Lybek, 2004. "Central Bank Governance; A Survey of Boards and Management," IMF Working Papers 04/226, International Monetary Fund.
  10. Benjamin E. Hermalin & Michael S. Weisbach, 2001. "Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature," NBER Working Papers 8161, National Bureau of Economic Research, Inc.
  11. Alan S. Blinder & John Morgan, 2008. "Leadership in Groups: A Monetary Policy Experiment," International Journal of Central Banking, International Journal of Central Banking, vol. 4(4), pages 117-150, December.
  12. Berger, Helge, 2005. "Optimal central bank design: benchmarks for the ECB," Discussion Papers 2005/27, Free University Berlin, School of Business & Economics.
  13. 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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