Communication in Monetary Policy Committees

Abstract

This paper models monetary policy decisions as being taken by an interacting group of heterogeneous policy makers, organized in a MPC. We show that communication between members generally improves the quality of monetary policy by increasing knowledge about uncertain future economic developments. Interestingly, we find that it is sometimes beneficial to restrict communication to a subset of MPC members. We also show that the optimal size of a communicating MPC is generally smaller than otherwise. Compared with expanding the MPC, communication is a cost-e.ective way of increasing the quality of monetary policy.

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