Discussion Paper Series 2005-E-4

The Monetary Policy Committee and the Incentive Problem:
A Selective Survey

Hiroshi Fujiki

This paper strives to answer five questions. First, why do legislators choose to create an independent central bank? Second, why do legislators delegate the conduct of monetary policy to a committee, rather than to a central bank governor? Third, what kinds of factors are crucial in limiting the size of the committee? Fourth, should the committee disclose individual members' voting records in addition to their policy decisions? Fifth, to what extent do current committee members constrain the decisions of future committee members? A selective review of the relevant economic literature suggests the conclusion that there is reasonable consensus on the first and second questions. The remaining three questions are still unresolved.

Keywords: central bank independence, monetary policy committee, voting, transparency, commitment

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2005 Bank of Japan All Rights Reserved.

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