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