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The origins of monetary policy disagreement: the role of supply and demand shocks

Carlos Madeira, Joao Madeira and Paulo Santos Monteiro

No 1118, BIS Working Papers from Bank for International Settlements

Abstract: We investigate how dissent in the FOMC is affected by structural macroeconomic shocks obtained using a medium-scale DSGE model. We find that dissent is less (more) frequent when demand (supply) shocks are the predominant source of inflation fluctuations. In addition, supply shocks are found to raise private sector forecasting uncertainty about the path of interest rates. Since supply shocks impose a trade-off between inflation and output stabilisation while demand shocks do not, our findings are consistent with heterogeneous preferences over the dual mandate among FOMC members as a driver of policy disagreement.

Keywords: FOMC; committees; monetary policy; structural shocks; dissent (search for similar items in EconPapers)
JEL-codes: D78 E52 E58 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
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