Policy Boards and Policy Smoothing*

Abstract

Partisan politics and random election outcomes generate policy uncertainty and partisan business cycles. To reduce policy uncertainty, society must design the policy-making environment to overcome electoral uncertainty and partisanship. I show that delegating policy to an independent policy board with discretionary powers will produce substantial policy smoothing and lower policy uncertainty relative to a simple model in which elected officials set policy. Board members are chosen in a partisan, noncooperative environment; yet in the benchmark model, policy variability is eliminated, and the cooperative bargaining solution is replicated.

The Dynamic (In)efficiency of Monetary Policy by Committee

“…As a result of policy inertia, the policy variable in this model changes less often than the state of nature and, consequently, the path of the former is smoother than that of the latter. A similar result whereby committee decision making induces policy smoothing has been derived by Waller (2000) in a model with partisan central bank appointments and exogenous electoral outcomesà la Alesina (1987). In our model, policy smoothing is not sustained by the strategic appointment of moderate committee members (as in Waller's model) or by trigger punishments (as in Alesina's model), but is instead the result of the voting game played by the committee.…”

Designing Monetary Policy Committees

“…As a result, very short terms and very large committees are desirable. Hence our model provides a new rationale for monetary policy-making by committee, supporting earlier findings in the literature (see Waller (2000), Blinder and Morgan (2005), and Gerlach-Kristen (2006)). 27 We have verified that this relationship is robust to changes in p. 28 One might expect the probability of no regime change to be p for N = 1.…”

Monetary Policy by Committee: Consensus, Chairman Dominance, or Simple Majority?*

“…For instance, Waller (1992Waller ( , 2000 study the implications of the length of the term of o ce and of the committee size, respectively.…”