How monetary policy committees impact the volatility of policy rates

How monetary policy committees impact the volatility of policy rates

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Unformatted text preview: How monetary policy committees impact the volatility of policy rates E. Farvaque, N. Matsueda, P-G. Mon 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. JEL Classifications: D70, E43, E58, F33 Keywords: Monetary Policy Committees, Decision Procedures, Interest-rate, Monetary Union CEB Working Paper N 08/026 2008 Universit Libre de Bruxelles Solvay Business School Centre Emile Bernheim ULB CP 145/01 50, avenue F.D. Roosevelt 1050 Brussels BELGIUM e-mail: ceb@admin.ulb.ac.be Tel. : +32 (0)2/650.48.64 Fax : +32 (0)2/650.41.88 How monetary policy committees impact the volatility of policy rates Etienne Farvaque Norimichi Matsueda Pierre-Guillaume Mon Abstract This paper relates the volatility of interest rates to the collec- tive nature of monetary policymaking in monetary unions. Sev- eral decision rules are modelled, including hegemonic and demo- cratic 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 e f ect. However, members of a monetary union are better o f under symmetric rules (voting, averaging, bargaining), un- less they themselves chair the union. The results are robust to the inclusion of heterogeneities among members of the monetary union. Keywords : Monetary Policy Committees, Decision Proce- dures, Interest-rate, Monetary Union JEL Classi f cation : D70, E43, E58, F33 Equippe - Universits de Lille, Facult des Sciences Economiques et Sociales, Uni- versit de Lille 1, 59655 Villeneuve dAscq Cedex (France). Etienne.Farvaque@univ- lille1.fr School of Economics, Kwansei Gakuin University, 1-1-155 Uegahara Nishinomiya, Hyogo 662-0851 (Japan). nmatsued@kwansei.ac.jp DULBEA, University of Brussels, CP-140, Avenue F.D. Roosevelt 50, 1050 Brux- elles (Belgium). pgmeon@ulb.ac.be The authors would like to thank, without implication, an anonymous referee, Alain Ayong-Le-Kama, Arnab Bhattacharjee, Helge Berger, Jan Marc Berk, Alan Blinder, Carl-Andreas Claussen, David Cobham, Catherine Dehon, Hiroshi Fujiki, Jakob de Haan, Volker Hahn, Bernd Hayo, Touria Jaaidane, Ellen Meade and Jan- Egbert Sturm, and participants to the 1 st World Meeting of Public Choice Societies in Amsterdam, the 22 nd International Conference on Money & Banking in Strasbourg, to the Norges Bank Workshop on Monetary Policy by Committees in Oslo, to the...
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This note was uploaded on 01/29/2012 for the course ECONOMICS 101 taught by Professor Tikk during the Spring '11 term at University of Toronto- Toronto.

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How monetary policy committees impact the volatility of policy rates

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