Influence and Interactions in Monetary Policy Committees

Over the last two decades central bank independence has become
the default for the conduct of monetary policy. In turn the decision-
making process, within a central bank, has become - by design - much
more transparent. The governance of this process is generally embed-
ded in some type of committee. In turn, the use of committees to
make decisions about interest rates, and other aspects of monetary
policy, has increased the amount of information –again deliberately –
made available about this decision-making itself. This in turn has gen-
erated a large literature on how committees make decisions, how they
interact among themselves, and whether or not the outcome reflects
the consensus, a majority decision, or perhaps the domination of one
or more members of the committee in the decision-making process.
This paper offers further insight into how decisions are made within a
committee and and proposes a method by which we can detect hidden
interactions among members of a committee, once we’ve conditioned
on the factors that influence individual committee member’s decisions
on interest rates. Using our method we are able to identify directions
of influence. In other words, a committee member can influence an-
other committee member, but not necessarily be influenced in return
by that member. In other words, that can be considerable asymmetry
in the influence committee members have, and how they are influenced
in turn by others.