Making Monetary Policy by Committee
I was Vice Chairman of the Federal Reserve Board while I was preparing my Marshall Lectures for delivery at Cambridge in 1995. So I asked the Board staff to research what had been written about making monetary policy by committees—as opposed to by individuals. Although they were (and remain) a knowledgeable and thorough bunch, they unearthed almost nothing. So when I delivered the Robbins Lectures at the London School of Economics the following year,1 this is what I concluded on the subject: My own hunch is that, on balance, the additional monetary policy inertia imparted by group decisionmaking provides a net benefit to society… But my main point is simpler: My experience as a member of the FOMC left me with a strong feeling that the theoretical fiction that monetary policy is made by a single individual maximizing a well-defined preference function misses something important. In my view, monetary theorists should start paying some attention to the nature of decisionmaking by committee, which is rarely mentioned in the academic literature. (Blinder (1998), p. 22) I made reference in that lecture to only one paper on the subject, Faust’s (1996) clever model of the seemingly-odd construction of the FOMC, though I should have cited Waller’s (1992) earlier work as well. (Mea culpa.) My point is that, up to then, there had been hardly any research on committee decisionmaking. Fortunately, that is no longer the case. By the time of my three Okun lectures at Yale in 2002 (Blinder (2004)), the subject merited a whole lecture, including references to about ten papers on the subject—and I missed some. (Mea culpa again.) The literature has continued to grow since then, including seven papers at a Netherlands Central Bank conference in 2005 and eleven papers at a Bank of Norway conference last year. The study of central banking by committee thus appears to be a growth industry, albeit a small one.
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- Anne Sibert, 2006.
"Central Banking by Committee,"
DNB Working Papers
091, Netherlands Central Bank, Research Department.
- Philippe Moutot & Alexander Jung & Francesco Paolo Mongelli, 2008. "The working of the eurosystem - monetary policy preparations and decision-making – selected issues," Occasional Paper Series 79, European Central Bank.
- Alan Blinder, 2006.
"Monetary Policy by Committee: Why and How?,"
DNB Working Papers
092, Netherlands Central Bank, Research Department.
- Christina D. Romer & David H. Romer, 2004.
"Choosing the Federal Reserve Chair: Lessons from History,"
Journal of Economic Perspectives,
American Economic Association, vol. 18(1), pages 129-162, Winter.
- Christina D. Romer & David H. Romer, 2003. "Choosing the Federal Reserve Chair: Lessons from History," NBER Working Papers 10161, National Bureau of Economic Research, Inc.
- Chappell, Henry W, Jr & McGregor, Rob Roy & Vermilyea, Todd, 2004. "Majority Rule, Consensus Building, and the Power of the Chairman: Arthur Burns and the FOMC," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 407-22, June.
- Szilárd Erhart & Jose Luis Vasquez-Paz, 2007.
"Optimal Monetary Policy Committee Size: Theory and Cross Country Evidence,"
Kiel Advanced Studies Working Papers
439, Kiel Institute for the World Economy.
- 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).
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- 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.
- 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.
- 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.
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