Should MPCs vote directly on the policy rate – as most do – or should they vote instead on the underlying premises for the decision? We see two reasons why voting on the premises can be preferable.We'll offer a third, and more important reason; if your premises aren't true it would only be dumb luck that your conclusion would be valid. Which does seem to be implied in the two economists' piece.
- The first is that voting on premises tends to lead to better average economic outcomes. ....
- The second reason is that premise-based decisions make communication easier and better.
In practice, there are probably elements of conclusion- and premise-based procedures, perhaps in a somewhat blurry mix, at all central banks.Maybe that explains some perverse policies of recent years. Of major players among central banks;
The Federal Open Market Committee of the US Fed seems to use a strongly conclusion-based procedure. They discuss premises, but apart from the statements in the press releases they publish no majority view on premises. They decide on policy by voting on policy.Got it; bad, and that ain't good. On the other hand;
...central banks that produce an inflation or monetary policy report are probably more premise-based in their decision-making, even if they vote on policy in the end. We can think of it as a partially premise-based procedure, as described above. Members first decide on the main elements of the report, and then take these as given when arriving at a preferred policy. The MPCs of the Bank of England and Sveriges Riksbank seem to use this approach.Janet? Janet?