The Dynamic (In)efficiency of Monetary Policy by Committee

Alessandro Riboni and Francisco Ruge-Murcia

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: This paper develops a model where the value of the monetary policy instrument is selected by a heterogenous committee engaged in a dynamic voting game. Committee members differ in their institutional power and, in certain states of nature, they also differ in their preferred instrument value. Preference heterogeneity and concern for the future interact to generate decisions that are dynamically ineffcient and inertial around the previously-agreed instrument value. This model endogenously generates autocorrelation in the policy variable and provides an explanation for the empirical observation that the nominal interest rate under the central bank’s control is infrequently adjusted.

Keywords: Committees; status-quo bias; interest-rate smoothing; dynamic voting (search for similar items in EconPapers)
JEL-codes: D02 E58 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-cdm, nep-mac, nep-mon and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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http://hdl.handle.net/1866/553 (application/pdf)

Related works:
Journal Article: The Dynamic (In)Efficiency of Monetary Policy by Committee (2008)
Journal Article: The Dynamic (In)Efficiency of Monetary Policy by Committee (2008)
Working Paper: The Dynamic (In)efficiency of Monetary Policy by Committee (2006)
Working Paper: The Dynamic (In)efficiency of Monetary Policy by Committee (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2006-02

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