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

55 Pages Posted: 22 Jul 2008 Last revised: 3 Apr 2009

Alessandro Riboni

Ecole Polytechnique, Paris - Laboratoire d'Econometrie

Francisco J. Ruge-Murcia

University of Montreal - Department of Economics; University of Montreal - Center for Interuniversity Research in Econometrics

Date Written: December 2008

Abstract

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.

Keywords: Committees, voting models, status-quo bias, median voter

Suggested Citation

Riboni, Alessandro and Ruge-Murcia, Francisco J., Monetary Policy by Committee: Consensus, Chairman Dominance or Simple Majority? (December 2008). Available at SSRN: https://ssrn.com/abstract=1168762 or http://dx.doi.org/10.2139/ssrn.1168762

Alessandro Riboni (Contact Author)

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

1 rue Descartes
Paris, 75005
France

Francisco J. Ruge-Murcia

University of Montreal - Department of Economics ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada

University of Montreal - Center for Interuniversity Research in Econometrics ( email )

C.P. 6128, Succursale Centre-ville
Montreal, Quebec H3C 3J7
Canada

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