Monetary policy decision-making by committee: Why, when and how it can work

Abstract

This paper updates and extends existing surveys on the economics of monetary policy decision-making by committee. The paper bridges the relevant literature on monetary policy decision-making and central bank communication, and it combines theoretical contributions with an empirically oriented practitioner’s view. Drawing on studies from the last two decades, the paper recaps the arguments for monetary policy-making by committee, highlights its trade-offs and considers remedies for the downsides of this form of decision-making, with a focus on transparency and communication. The paper applies these insights to a case study of the European Central Bank’s present decision-making environment. It puts a spotlight on recent phenomena such as dissent and non-consensual decision-taking which are less well captured by the literature on the euro area so far. The paper closes by identifying key priorities for a research agenda on the design and process of monetary policy-making in the euro area.