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Too Many Cooks? Committees in Monetary Policy. Helge Berger International Monetary Fund & Free University Berlin Volker Nitsch Darmstadt University & KOF, ETH Zurich. Motivation 1 — The Idea. - PowerPoint PPT Presentation
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Too Many Cooks? Committees in Monetary PolicyHelge BergerInternational Monetary Fund &Free University Berlin
Volker NitschDarmstadt University &KOF, ETH Zurich
Motivation 1 The IdeaThe quality of monetary policy decisions is, among other things, a function of the design of the decision-making bodyDesign dimensions include size and (in federal set-ups) centralization, and representationSize of considerable recent theoretical & practical interestExample: debate on ECB reform (GC max = 21 > 5-10 avg) First attempt at providing simple theory & stylized facts:What arguments may matter for board/MPC size?What arguments do matter?Is board/MPC size part of a larger CB design problem?
Motivation 2 MPC Size and Monetary PolicyThe number of board members is objective and measurable.
Quality of decision-making process is also influenced by:Chairman:Determining the agendaMeeting proceduresInternal or external members:Internal members career depend on the chairman?External members and conflict of interest?Government representatives:Voting / no voting rights?
Determinants of MPC SizeMPC design in general, and decision on size in particular, involve trade-off between costs and benefits (Sibert 2006, Berger 2006, Gerling et al. 2005, Fujiki 2005) BenefitsInformation: larger MPCs better at collecting and processing information under uncertainty (Gerlach-Kristen 2006, Blinder/Morgan 2005, Lombardelli et al. 2005, Berk/Bierut 2004)Moderation: larger MPC moderate extreme views (Riboni/Ruge-Murcia 2006, Sibert 2006, Blinder 1998)Political Economy: larger MPCs may help insulate individuals from political pressure (Blinder 2006)
Determinants of MPC Size 2CostsDecision-making: increasing in membership size (Berger 2006)
Example:
Information: decreasing returns & free-riding (Sibert 2006)
C = e [n (n -1)] / 2 + e n
Determinants of MPC Size 3Costs (continued)Example: Bundesbank reform German Bundesbank asserts that its 1992 MPC reform triggered by German unification helped preventing an increase in MPC size which would have greatly complicated that bodys decision-making processes (Deutsche Bundesbank 1992, p.50) Example: ECB reform ECB admitted fear that anticipated increase in the number of national central bank governors attending euro area MPC meetings after EMU enlargement will not necessarily make deliberations easier. (ECB 2003, p.83)
Determinants of MPC Size 4Country characteristics: Goodfriend (2005): efficient size of a policy committee might vary across countriesInformation-related benefits are likely to be increasing in country size & heterogeneityDecision-making costs could be lower in environments used to more democratic decision processesOther economic, political, and institutional factors, e.g. income levels, fiscal behavior, monetary policy regime, other features of the central bank set-up may matter, tooUse this variation to identify determinants of MPC size How to think about the underlying design process?
LiteratureCosts and benefits of MPC size (applied theoretical, institutional or experimental perspectives)(Blinder 1998, Gerlach-Kristen 2006, Blinder and Morgan (2005), Lombardelli et al. 2005, Sibert 2006)
Empirics of MPC design(Berger et al. 2008, Erhart and Vasquez-Paz 2007)
Effects of institutional features of central banking on monetary policy(Cukierman et al. 1992, de Haan and Kooi 2000, Ghlmann and Vaubel 2007)
Effects of board size (and other board characteristics) on corporate performance (Yermack 1996, Hermalin and Weisbach 2003, de Andres and Vallelado 2008)
DataNew data set on MPCs around the world: 33 countries1950-2006annualde jure/de factovarious other features (e.g., composition) Compute other measures in addition to MPC size (e.g., governor/membership turnover rate)
Country Sample
Data on Board Size
Data on Board Size
Diagramm6
3195019501950
3195119511951
3195219521952
3195319531953
3195419541954
3195519551955
3195619561956
3195719571957
3195819581958
3195919591959
3196019601960
37.6196110.33333
38.2196210.22222
38.2196310.44444
38196410.44444
38196510.55556
38.181818196610.77778
38196710.77778
38.090909196810.77778
38196910.77778
37.727273197010.88889
37.727273197111
37.909091197210.77778
37.818182197310.88889
37.909091197410.88889
37.909091197510.77778
37.9090917.2510.66667
387.510.88889
37.6363647.510.55556
389.7510.33333
37.9090919.7510.11111
38.09090910.7510.22222
38.09090910.510.55556
38.09090910.510.44444
381010.44444
37.90909110.7510.55556
37.7272739.7510.66667
37.81818210.510.44444
37.81818211.2510.55556
37.8181821110.66667
37.5454559.2510.44444
37.9090918.510.33333
388.2510
38.1818189.59.666667
48.0909098.759.666667
48.0909095.259.555555
3.88.1818186.259.444445
5.48.1818186.259.555555
67.72727379.111111
6.27.5454557.51999
6.27.5454557.52000
6.27.7272737.52001
67.6363647.752002
67.9090918.252003
67.8181827.52004
67.8181827.52005
5.87.5454558.6666672006
5 countries
9 countries
11 countries
4 countries
fmavg1
fmavg2
fmavg3
jmavg
Tabelle1
yearfmbrjmbrfmfulljmfullfm5006jm5006fm6106jm6106fm7606jm7606fm8606jm8606fm6198jm6198
19503.285713.857143.2857143.8571433333333346
195155.555.5334.7142864.8571434.7142864.8571434.7142864.8571435.6666677
19525.15.55.15.5334.5714294.8571434.5714294.8571434.5714294.8571436.3333337
19535.272735.727275.2727275.727273335.1255.255.1255.255.1255.255.6666677
19545.153855.692315.1538465.692307334.95.34.95.34.95.367
19556.26.666676.26.666667336.1666676.5833336.1666676.5833336.1666676.5833336.3333337
19566.68757.1256.68757.125336.1666676.5833336.1666676.5833336.1666676.5833338.258.75
19577.222228.055567.2222228.055555336.0769236.9230776.0769236.9230776.0769236.92307710.211
19587.277788.055567.2777788.055555336.1538466.9230776.1538466.9230776.1538466.92307710.211
19598.227279.190488.2272739.190476336.4285717.4285716.4285717.4285716.4285717.4285711212.71429
19608.181829.190488.1818189.190476336.57.4285716.57.4285716.57.42857111.7142912.71429
19617.648.57.648.5336.18757.1256.18757.1256.18757.12510.62511.25
19627.848.583337.848.583333336.56257.256.56257.256.56257.2510.511.25
19637.928.583337.928.583333336.57.256.57.256.57.2510.87511.25
19647.888.583337.888.583333336.43757.256.43757.256.43757.2510.7511.25
196588.5769288.576923336.57.256.7777787.3888896.7777787.38888910.87511.25
19668.185198.576928.1851858.576923336.68757.2577.38888977.38888910.87511.25
19678.111118.576928.1111118.576923336.6257.256.8888897.3888896.8888897.38888910.87511.25
19688.142868.666678.1428588.666667336.6257.256.9473697.5789486.9473697.5789481111.25
19698.107148.814818.1071428.814815336.6257.256.8947377.7894746.8947377.7894741111.25
19708.035718.740748.0357148.740741336.31257.06256.7894747.6315796.7894747.63157911.2511.375
19718.034488.678578.0344838.678572336.3757.06256.757.66.757.611.2511.375
19728.137938.678578.1379318.678572336.57.062577.677.61111.375
19738.20698.678578.2068978.678572336.57.06257.057.77.057.71111.125
19748.034488.464298.0344838.464286336.57.06256.87.46.87.41111.125
197588.4642988.464286336.43757.06256.757.46.757.41111.125
19767.98.482767.98.482759336.43757.06256.757.46.757.410.87511.125
19778.066678.517248.0666678.517241336.57.06256.857.456.857.4511.12511.125
19787.833338.517247.8333338.517241336.1257.06256.557.456.557.451111.125
19798.28.689668.28.689655336.57.06257.37.77.37.710.511.125
19808.18.689668.18.689655336.31257.06257.157.77.157.710.511.125
19818.233338.965528.2333348.965517336.3757.06257.48.17.48.110.7511.125
19828.38.965528.38.965517336.57.06257.458.17.458.110.87511.125
19838.266678.965528.2666668.965517336.43757.06257.48.17.48.110.87511.125
19848.166678.965528.1666678.965517336.43757.06257.38.17.38.110.7511.125
19858.38.965528.38.965517336.57.06257.458.17.458.110.7511.125
19868.161299.066678.161299.066667336.56257.06257.258.157.3809528.28571410.62511.125
19878.193559.18.1935489.1336.43757.06257.258.27.3333338.33333310.62511.125
19888.322589.18.322589.1336.56257.06257.458.27.5238098.33333310.62511.125
19898.322588.88.322588.8336.56256.57.47.757.4761917.90476210.7511.125
19907.903238.533337.9032268.533334336.3756.56.857.36.9523817.47619110.62511.25
19917.967748.433337.9677428.433333336.43756.31256.857.156.9523817.33333310.62511.25
19927.935488.266677.9354848.266666336.3756.31256.87.1577.33333310.37510.625
19938.064528.366678.0645168.366667336.43756.31257.157.37.3333337.47619110.12510.625
19948.066678.28.0666678.2436.81256.31257.27.37.3809527.4761911010
19957.566677.633337.5666677.633333436.81256.31256.556.456.7619056.6666679.87510
19967.633337.833337.6333337.8333333.836.6256.31256.66.756.7619056.9523811010
19977.862077.833337.8620697.8333335.437.18756.31257.056.757.056.9523811010
19987.866678.166677.8666678.166667657.06256.81257.17.37.2857147.4761919.59.875
19997.363647.454557.3636367.4545456.257.06256.68757.27.27.3809527.380952
20007.260877.409097.260877.4090916.257.06256.68757.27.27.2857147.333333
20017.363647.409097.3636367.4090916.257.1256.68757.257.27.3809527.333333
20027.227277.409097.2272737.409091656.93756.68757.157.27.2380957.333333
20037.454557.272737.4545457.272727657.06256.68757.457.27.4285717.190476
20047.227277.272737.2272737.272727657.06256.68757.357.27.2857147.190476
20057.217397.272737.2173917.272727657.1256.68757.257.27.2380957.190476
20067.190487.190487.1904767.1904765.856.81256.68757.27.27.1904767.190476
Tabelle2
yearfmbrfm5006fm6106fm7606fm8606fm6198
19503.285713
195153
19525.13
19535.272733
19545.153853
19556.23
19566.68753
19577.222223
19587.277783
19598.227273
19608.181823
19617.6436.187510.625
19627.8436.562510.5
19637.9236.510.875
19647.8836.437510.75
1965836.510.875
19668.1851936.687510.875
19678.1111136.62510.875
19688.1428636.62511
19698.1071436.62511
19708.0357136.312511.25
19718.0344836.37511.25
19728.1379336.511
19738.206936.511
19748.0344836.511
1975836.437511
19767.936.43756.7510.875
19778.0666736.56.8511.125
19787.8333336.1256.5511
19798.236.57.310.5
19808.136.31257.1510.5
19818.2333336.3757.410.75
19828.336.57.4510.875
19838.2666736.43757.410.875
19848.1666736.43757.310.75
19858.336.57.4510.75
19868.1612936.56257.257.38095210.625
19878.1935536.43757.257.33333310.625
19888.3225836.56257.457.52380910.625
19898.3225836.56257.47.47619110.75
19907.9032336.3756.856.95238110.625
19917.9677436.43756.856.95238110.625
19927.9354836.3756.8710.375
19938.0645236.43757.157.33333310.125
19948.0666746.81257.27.38095210
19957.5666746.81256.556.7619059.875
19967.633333.86.6256.66.76190510
19977.862075.47.18757.057.0510
19987.8666767.06257.17.2857149.5
19997.363646.27.06257.27.380952
20007.260876.27.06257.27.285714
20017.363646.27.1257.257.380952
20027.2272766.93757.157.238095
20037.4545567.06257.457.428571
20047.2272767.06257.357.285714
20057.2173967.1257.257.238095
20067.190485.86.81257.27.190476
Tabelle2
5 countries
8 countries
16 countries
20 countries
fm5006
fm6106
fm7606
fm6198
Tabelle3
yearfmavgfmavg1fmavg2fmavg3fmavg4jmavgjmavg1jmavg2jmavg3jmavg4
19503.28571433.85714336
1951535.539.57
19525.135.539.57
19535.27272735.727273397
19545.15384635.69230737.67
19556.236.66666739.1428587
19566.687537.12539.1428588.75
19577.22222238.05555539.14285811
19587.27777838.05555539.14285811
19598.22727339.19047639.7512.5
19608.18181839.19047639.7512.5
19617.6437.610.333338.538.811.22222
19627.8438.210.222228.5833333911.22222
19637.9238.210.444448.5833333911.22222
19647.883810.444448.5833333911.22222
196583810.555568.57692338.909091911.22222
19668.18518538.18181810.777788.57692338.909091911.22222
19678.1111113810.777788.57692338.909091911.22222
19688.14285838.09090910.777788.66666738.9090911011.22222
19698.1071423810.777788.81481538.9090911211.22222
19708.03571437.72727310.888898.74074138.6363641211.33333
19718.03448337.727273118.67857238.63636410.3333311.33333
19728.13793137.90909110.777788.67857238.63636410.3333311.33333
19738.20689737.81818210.888898.67857238.6363641111.11111
19748.03448337.90909110.888898.46428638.636364911.11111
1975837.90909110.777788.46428638.636364911.11111
19767.937.9090917.2510.666678.48275938.636364911.11111
19778.066667387.510.888898.51724138.6363649.2511.11111
19787.83333337.6363647.510.555568.51724138.6363649.2511.11111
19798.2389.7510.333338.68965538.63636410.511.11111
19808.137.9090919.7510.111118.68965538.63636410.511.11111
19818.23333438.09090910.7510.222228.96551738.63636412.511.11111
19828.338.09090910.510.555568.96551738.63636412.511.11111
19838.26666638.09090910.510.444448.96551738.63636412.511.11111
19848.166667381010.444448.96551738.63636412.511.11111
19858.337.90909110.7510.555568.96551738.63636412.511.11111
19868.1612937.7272739.7510.666679.06666738.63636412.7511.11111
19878.19354837.81818210.510.444449.138.6363641311.11111
19888.3225837.81818211.2510.555569.138.6363641311.11111
19898.3225837.8181821110.666678.837.8181821311.11111
19907.90322637.5454559.2510.444448.53333437.81818210.7511.22222
19917.96774237.9090918.510.333338.43333337.81818210.7510.88889
19927.935484388.25108.26666637.81818210.7510.33333
19938.06451638.1818189.59.6666678.36666737.81818211.510.33333
19948.06666748.0909098.759.6666678.237.81818211.59.777778
19957.56666748.0909095.259.5555557.63333337.8181827.259.777778
19967.6333333.88.1818186.259.4444457.83333337.8181828.759.777778
19977.8620695.48.1818186.259.5555557.83333337.8181828.759.777778
19987.86666767.72727379.1111118.16666757.6363649.59.666667
19997.3636366.27.5454557.57.45454557.4545459.58
20007.260876.27.5454557.57.40909157.4545459.58
20017.3636366.27.7272737.57.40909157.4545459.58
20027.22727367.6363647.757.40909157.4545459.58
20037.45454567.9090918.257.27272757.4545459.58
20047.22727367.8181827.57.27272757.4545459.58
20057.21739167.8181827.57.27272757.4545459.58
20067.1904765.87.5454558.6666677.19047657.4545459.6666678
Tabelle3
5 countries
9 countries
11 countries
4 countries
fmavg1
fmavg2
fmavg3
jmavg
Episodes of Major Changes in Board Size
MethodologyAim: Measure the success of monetary policy
Event-study approach
Fatas, Mihov, and Rose (JMCB, 2007):
Controls: Openness, Budget deficit, BusCycle, Per capita income, GDP Does board size matter?Inflationit+1 = + 1 Targetit + 2 Successit + Yi + i
Event-Study Analysis: Inflation
Event-Study Analysis: Real GDP Growth
Optimal Board Size
Other Dependent Variablesnormalized inflation: NormInflit = Inflationit / (1 + Inflationit)
Other MPC Size Measures
Other MPC Characteristics
MPC Size and Quantitative Targets
ConclusionsEvidence that MPC size affects monetary policy outcomes (such as inflation) important feature of CB designU-shaped relationship; minimum level of inflation is reached at about 8 to 10 membersOther MPC characteristics also of importanceA lot is left to be doneStrengthen and extend empirical work: panel estimation techniques; extend sample Explore interaction with other CB characteristics
Appendix
Size FactsNumber of Members in Governing Bodies 2003Source: Lybek & Morris (2005)Number of Members in Governing Bodies 2003
Distribution (%)Obs. 34-67-910-12 13Policy42847111050Implementation41010404095
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