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How monetary policy committees impact the volatility of policy rates

  • Etienne Farvaque
  • Norimichi Matsueda
  • Pierre-Guillaume Méon

This paper relates the volatility of interest rates to the collective nature of monetary policymaking in monetary unions. Several decision rules are modelled, including hegemonic and democratic procedures, and also committees headed by a chairman. A ranking of decision rules in terms of the volatility of policy rates is obtained, showing that the presence of a chairman has a cooling effect. However, members of a monetary union are better off under symmetric rules (voting, averaging, bargaining), unless they themselves chair the union. The results are robust to the inclusion of heterogeneities among members of the monetary union.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 08-026.RS.

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Length: 30 p.
Date of creation: 2008
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:08-026
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  1. Sibert, Anne, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CEPR Discussion Papers 2328, C.E.P.R. Discussion Papers.
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  10. Etienne Farvaque & Norimichi Matsueda & Pierre-Guillaume Méon, 2007. "How committees reduce the volatility of policy rates," DULBEA Working Papers 07-11.RS, ULB -- Universite Libre de Bruxelles.
  11. Pierre-Guillaume Méon, 2006. "Majority voting with stochastic preferences: the whims of a committee are smaller than the whims of its members," ULB Institutional Repository 2013/8364, ULB -- Universite Libre de Bruxelles.
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  24. 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.
  25. Daniel Gros & Carsten Hefeker, 2007. "Monetary Policy In Emu With Asymmetric Transmission And Non-Tradable Goods," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 268-282, 05.
  26. Michael Ehrmann & Leonardo Gambacorta & Jorge Martinez-PagÈs & Patrick Sevestre & Andreas Worms, 2003. "The Effects of Monetary Policy in the Euro Area," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 58-72.
  27. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2005. "Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033305, June.
  28. Méon, Pierre-Guillaume, 2008. "Majority voting may not rule (in monetary unions): A comment on Matsen and Røisland [Eur. J. Political Economy 21 (2005) 365-384]," European Journal of Political Economy, Elsevier, vol. 24(1), pages 269-279, March.
  29. Gerlach-Kristen, Petra, 2005. "Too little, too late: Interest rate setting and the costs of consensus," Economics Letters, Elsevier, vol. 88(3), pages 376-381, September.
  30. Petra Gerlach-Kristen, 2008. "The Role of the Chairman in Setting Monetary Policy: Individualistic vs. Autocratically Collegial MPCs," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 119-143, September.
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