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Monetary Policy by Committee:Consensus, Chairman Dominance or Simple Majority?

  • RIBONI, Alessandro
  • RUGE-MURCIA, Francisco J.

This paper studies the theoretical and empirical implications of monetary policy making by committee under three different voting protocols. The protocols are a consensus model, where super-majority is required for a policy change; an agenda-setting model, where the chairman controls the agenda; and a simple majority model, where policy is determined by the median member. These protocols give preeminence to different aspects of the actual decision making process and capture the observed heterogeneity in formal procedures across central banks. The models are estimated by Maximum Likehood using interest rate decisions by the committees of five central banks, namely the Bank of Canada, the Bank of England, the European Central Bank, the Swedish Riksbank, and the U.S. Federal Reserve. For all central banks, results indicate that the consensus model is statically superior to the alternative models. This suggests that despite institutionnal differences, committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions.

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File URL: http://hdl.handle.net/1866/2215
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Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2008-02.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mtl:montde:2008-02
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  1. James Bullard & Christopher J. Waller, 2002. "Central bank design in general equilibrium," Working Papers 1998-002, Federal Reserve Bank of St. Louis.
  2. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-36, March.
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  6. 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.
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  13. Dal Bo, Ernesto, 2006. "Committees with supermajority voting yield commitment with flexibility," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 573-599, May.
  14. Thomas R. Palfrey, 2005. "Laboratory Experiments in Political Economy," Working Papers 91, Princeton University, Department of Economics, Center for Economic Policy Studies..
  15. Weber, Anke, 2008. "Communication, decision-making and the optimal degree of transparency of monetary policy committees," Discussion Paper Series 1: Economic Studies 2008,02, Deutsche Bundesbank, Research Centre.
  16. Brian Knight, 2005. "Estimating the Value of Proposal Power," American Economic Review, American Economic Association, vol. 95(5), pages 1639-1652, December.
  17. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
  18. Szilárd Erhart & Jose-Luis Vasquez-Paz, 2007. "Optimal monetary policy committee size: Theory and cross country evidence," MNB Working Papers 2007/6, Magyar Nemzeti Bank (the central bank of Hungary).
  19. Philipp Maier, 2007. "Monetary Policy Committees in Action: Is There Room for Improvement?," Working Papers 07-6, Bank of Canada.
  20. Arnab Bhattacharjee & Sean Holly, 2006. "Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC," CDMA Working Paper Series 200612, Centre for Dynamic Macroeconomic Analysis.
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