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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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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 02-2008.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:mtl:montec:02-2008
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  1. 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.
  2. Christopher J. Waller, 2000. "Policy Boards And Policy Smoothing," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 305-339, February.
  3. 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.
  4. 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.
  5. G Frechette & J Kagel & M Morelli, 2004. "Behavioral Identification in Coalition Bargaining: An Experimental Analysis of Demand Bargaining and Alternating Offers," Levine's Bibliography 122247000000000006, UCLA Department of Economics.
  6. Bullard, James & Waller, Christopher J, 2004. "Central Bank Design in General Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 95-113, February.
  7. Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers 615, Stockholm University, Institute for International Economic Studies.
  8. Waller, Christopher J., 1992. "A bargaining model of partisan appointments to the central bank," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 411-428, June.
  9. Stephen Coate & Marco Battaglini, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," 2005 Meeting Papers 209, Society for Economic Dynamics.
  10. 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).
  11. Persson, T. & Roland, G. & Tabellini, G., 1997. "Comparative Politics and Public Finance," Papers 633, Stockholm - International Economic Studies.
  12. 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.
  13. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  14. Petra Gerlach-Kristen, 2009. "Outsiders at the Bank of England's MPC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(6), pages 1099-1115, 09.
  15. 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.
  16. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
  17. Thomas R. Palfrey, 2005. "Laboratory Experiments in Political Economy," Working Papers 91, Princeton University, Department of Economics, Center for Economic Policy Studies..
  18. Philipp Maier, 2007. "Monetary Policy Committees in Action: Is There Room for Improvement?," Working Papers 07-6, Bank of Canada.
  19. Brian Knight, 2005. "Estimating the Value of Proposal Power," American Economic Review, American Economic Association, vol. 95(5), pages 1639-1652, December.
  20. Diermeier, Daniel & Gailmard, Sean, 2006. "Self-Interest, Inequality, and Entitlement in Majoritarian Decision-Making," Quarterly Journal of Political Science, now publishers, vol. 1(4), pages 327-350, October.
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