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

  • Francisco Ruge-Murcia

    (University of Montreal)

  • Alessandro Riboni

    (University of Montreal)

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 Likelihood 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 statistically superior to the alternative models. This suggests that despite institutional differences, committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 142.

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Date of creation: 2008
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Handle: RePEc:red:sed008:142
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