Designing Monetary Policy Committees
35 Pages Posted: 23 Aug 2012 Last revised: 3 Jul 2013
Date Written: July 1, 2013
We integrate a monetary policy committee into a New Keynesian model to assess the consequences of the committee’s institutional characteristics for welfare. First, we demonstrate that uncertainty about the committee’s future composition may be desirable. Second, we show that longer terms of central bankers lead to more effective output stabilization at the expense of higher inflation variability. Third, larger committees allow for more efficient stabilization of both output and inflation, provided that the pool of candidates is sufficiently diverse.
Keywords: Monetary policy committees, term length, committee size, New Keynesian model
JEL Classification: E58, D71
Suggested Citation: Suggested Citation