Explaining Interest Rate Decisions when the MPC Members Believe in Different Stories

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.