nr 092 - Monetary Policy by Committee: Why and How?

DNB Working Papers
Publicatiedatum 28 februari 2006

Among the most notable, but least discussed, hallmarks of what I have called the "quiet revolution" in central banking practice (Blinder, 2004a) has been the movement toward making monetary policy decisions by committee. Until about a decade ago, most central banks had a single governor, who might or might not have been independent of the rest of the government. But since then, the United Kingdom, Japan, Sweden, Norway, Switzerland, and Brazil, to name just a few, have opted to establish monetary policy committees (MPCs). In addition, the committee-based ECB replaced 12 central banks, most of which had previously been run by individual governors. Thus the existence of a pronounced worldwide trend is clear. In this paper, I discuss two questions. The first question is why. Why have so many central banks switched from individual to group decisionmaking? The second question is how. How should central banks make decisions and how should they communicate with the public, the government, and the markets? Key words: central banks, committees, voting, communication. JEL codes: E58, D71, D78