Title: Too Little, Too Late -- Interest Rate Setting and the Costs of Consensus
Reference Number: 1087
Publication Date: May 2004
JEL Classifcation: E43, E58

Petra Gerlach-Kristen
The University of Hong Kong


Central banks have been criticised for changing interest rates "too little, too late". While this pattern arises in a simple model in which policymakers are exposed to uncertainty about the optimal level of interest rates and set the policy rate in steps, we show that the problem is exacerbated if a policy committee takes decisions by consensus rather than by a vote. Policy rate changes are moreover rarer under a consensus procedure and, when there is an adjustment, the policy rate is more frequently adjusted by several steps at a time.


Key words: monetary policy committees, decision procedures, Bank of England, European Central Bank

Last modified: 01/24/2007