Communication, Decision Making, and the Optimal Degree of Transparency of Monetary Policy Committees

This paper develops a theoretical model of a monetary policy committee with heterogeneous members whose decisions and public communications are observed by the financial markets. It thereby provides a link between the literatures on monetary policy committees and central bank communication. The results show that transparency about the different views among committee members surrounding the economic outlook is beneficial. However, communicating the diversity of views about the monetary policy decision may not be welfare enhancing, at least in the short term. These results support previous empirical findings and have strong implications for how committees should communicate.