The origins of monetary policy disagreement: The role of supply and demand shocks

TY - JOUR

T1 - The origins of monetary policy disagreement: The role of supply and demand shocks

AU - Santos Monteiro, Paulo

AU - Madeira, Joao

AU - Madeira, Carlos

PY - 2023/9/12

Y1 - 2023/9/12

N2 - We investigate how dissent in the FOMC is affected by structural macroeconomic shocks obtained using a medium-scale DSGE model. We find that dissent is less (more) frequent when demand (supply) shocks are the predominant source of inflation fluctuations. In addition, supply shocks are found to raise private sector forecasting uncertainty about the path of interest rates. Since supply shocks impose a trade-off between inflation and output stabilization while demand shocks do not, our findings are consistent with heterogeneous preferences over the dual mandate among FOMC members as a driver of policy disagreement.

AB - We investigate how dissent in the FOMC is affected by structural macroeconomic shocks obtained using a medium-scale DSGE model. We find that dissent is less (more) frequent when demand (supply) shocks are the predominant source of inflation fluctuations. In addition, supply shocks are found to raise private sector forecasting uncertainty about the path of interest rates. Since supply shocks impose a trade-off between inflation and output stabilization while demand shocks do not, our findings are consistent with heterogeneous preferences over the dual mandate among FOMC members as a driver of policy disagreement.

KW - FOMC

KW - Committees

KW - Monetary policy

KW - Structural shocks

KW - Dissent

M3 - Article

SN - 0034-6535

JO - Review of economics and statistics

JF - Review of economics and statistics

ER -