Monetary policy decision-making when information search is costly

Alexander Jung and Francesco Mongelli

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores monetary policy decision-making within an insurance model with expected utility-maximizing policy-makers. The authors consider that policy-makers are different in terms of their backgrounds, experience and skills and they may disagree on the appropriate policy response. In a monetary policy committee, they share information and decide on interest rates by means of an agreed voting rule. The authors show that, in the presence of risk and search costs, it would be optimal for policy-makers to fully insure against the expected loss from a potential policy error. Whether a monetary policy committee sufficiently hedges against this risk will depend on several factors such as the skills of policy-makers, the distribution of members’ beliefs, and the committee’s (statutory) voting rule, but also on other factors not captured by the model.

Keywords: monetary policy committee; analysis of collective decision-making; search costs; voting behavior (search for similar items in EconPapers)
JEL-codes: D72 D81 D83 E58 (search for similar items in EconPapers)
Date: 2013-08-09, Revised 2016-05-25
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Monetary policy decision-making when information search is costly 1.11(2016): pp. 14-21

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80517

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