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Overconfidence, monetary policy committees and chairman dominance

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  • Claussen, Carl Andreas
  • Matsen, Egil
  • Røisland, Øistein
  • Torvik, Ragnar

Abstract

Monetary policy decisions are typically characterized by three features: (i) decisions are made by a committee, (ii) the committee members often disagree, and (iii) the chairman is almost never on the losing side in the vote. We show that the combination of overconfident policymakers and a chairman with agenda-setting rights can explain all these features. The optimal agenda-setting power to the chairman is a strictly concave function of the degree of overconfidence. We also show that the quality of advice produced by the central bank staff is higher in a flat organization than in a hierarchical one.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 81 (2012)
Issue (Month): 2 ()
Pages: 699-711

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Handle: RePEc:eee:jeborg:v:81:y:2012:i:2:p:699-711

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Central bank governance; Monetary policy committees; Overconfidence; Agenda-setting;

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Cited by:
  1. Matthias Neuenkirch & Peter Tillmann, 2012. "Inflation Targeting, Credibility, and Non-Linear Taylor Rules," MAGKS Papers on Economics 201235, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Proeger, Till & Meub, Lukas, 2014. "Overconfidence as a social bias: Experimental evidence," Economics Letters, Elsevier, vol. 122(2), pages 203-207.
  3. Etienne Farvaque & Norimichi Matsueda, 2013. "Optimal Term Length for an Overconfident Central Banker," Discussion Paper Series 106, School of Economics, Kwansei Gakuin University, revised Jun 2013.

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