226 - Communication in a monetary policy committee: a note

DNB Working Papers
Date 9 November 2009

This paper models monetary policy decisions as being taken by an interacting group of heterogeneous policy makers, organized in a committee. Disclosing the premises on which an individual view on the interest rate is based is likely to provide value added in terms of the quality of the collective decision over-and-above simultaneous voting on interest rates. However, this is not generally true, as communication also involves a trade-off in the quality of views of committee members, which can lead to a reduction in the quality of collective decisions below the outcome achieved under simple majority voting. Still, communication is a relatively effective way to implement the ’knowledge pooling’ argument pro-collective decision-making, compared to expanding the size of the MPC.

Keywords: committees, deliberations, correlated votes, simple majority voting.

JEL classification: E58, D71, D78.