Explaining Interest Rate Decisions when the MPC Members Believe in Different Stories
by Carl Andreas Claussena and Ĝistein Rĝislandb
Most central banks explain interest rate decisions, i.e., they
provide a story. With committee decisions, it can be difficult
to find a story that is both consistent with the decision and
representative for the committee. We consider two alternative
procedures: (i) vote on the interest rate and let the winner
decide the story, or (ii) vote on the elements of the story and let
the interest rate follow from the story. The two procedures tend
to result in different outcomes due to an aggregation inconsistency
called the discursive dilemma. We find that (ii) tends to
yield better stories.
JEL Codes: E52, E58, D71.
Full article (PDF, 24 pages, 328 kb)
a Sveriges Riksbank
b Norges Bank