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Monetary Policy by Committee: Why and How?

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  • Alan S. Blinder

    (Princeton University)

Abstract

Among the most notable, but least discussed, hallmarks of what I have called the quiet revolution in central banking practice (Blinder, 2004a) has been the movement toward making monetary policy decisions by committee. Until about a decade ago, most central banks had a single governor, who might or might not have been independent of the rest of the government. But since then, the United Kingdom, Japan, Sweden, Norway, Switzerland, and Brazil, to name just a few, have opted to establish monetary policy committees (MPCs). In addition, the committee-based ECB replaced 12 central banks, most of which had previously been run by individual governors. I am unaware of any case in which a country replaced an MPC by a single decisionmaker. In fact, a recent survey by Pollard (2004) found that 79 out of 88 central banks made monetary policy by committee. Thus the existence of a pronounced worldwide trend is clear. So the first question for this paper is why. Why have so many central banks switched from individual to group decisionmaking?

Suggested Citation

  • Alan S. Blinder, 2005. "Monetary Policy by Committee: Why and How?," Working Papers 84, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:118
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    2. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 649-665.
    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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    5. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan standard," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 11-96.
    6. 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.
    7. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan standard," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 11-96.
    8. Faust, Jon, 1996. "Whom can we trust to run the Fed? Theoretical support for the founders' views," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 267-283, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    monetary policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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