Most monetary policy committees decide on interest rates using a simple majority voting rule. Given the inherent heterogeneity of committee members, this voting rule is suboptimal in terms of the quality of the interest rate decision, but popular for other (political) reasons. We show that a clustering of committee members into 2 subgroups, as is the case in a hub-and spokes systems of central banks such as the Fed or the ESCB, can eliminate this suboptimality whilst retaining the majority voting rule.

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hdl.handle.net/1765/6611
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Berk, J.M, & Bierut, B.K. (2004). On the Optimality of Decisions (No. TI 04-120/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6611