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Overconfidence, monetary policy committees and chairman dominance

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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