The Role of the Chairman in Setting Monetary Policy: Individualistic vs. Autocratically Collegial MPCs

Abstract

This paper models the role of the Chairman in the decision making of individualistic and autocratically collegial monetary policy committees, assuming that uncertainty about the optimal interest rate causes policymakers’ views to differ and that they are unable to communicate their opinions perfectly. The Chairman’s ability to moderate the discussion and his economic skills—and, in an autocratically collegial committee, the authority arising from his position—impact the path of interest rates and the distribution of votes. Simulations suggest that his influence on the quality of policy itself is limited and that interest rate setting is only slightly worse in an autocratically collegial setup. The Chairman’s main impact is to help build consensus in the committee, which enhances the credibility of monetary policy.