Consensus Formation in Monetary Policy Committees
Building on Blinder and Wyplosz (2005) this paper presents a formal mechanism which potentially explains how autocratically collegiate, genuinely collegiate and individualistic monetary policy committees (MPCs) are able to reach a consensus. Drawing on the theory of Markov chains, I adopt a bounded-rational approach, and demonstrate how individuals are able to forge agreement, even when interest rate preferences are initially diverse. I show how consensus is reached when (i) career concerns are present and (ii) when members hold different opinions about the usefulness of others’ information. An overriding conclusion which emerges is that it is possible to populate MPCs with people who hold very different views about the economy and still reach an agreement. Further, although MPCs should be populated by people who are willing to listen to the opinions of others, the degree to which members are willing to listen to each other has ramifications for the type of decision which is reached.
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