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Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making

  • Clare Lombardelli

    (Bank of England)

  • James Proudman

    (Bank of England)

  • James Talbot

    (Bank of England)

We report the results of an experimental analysis of monetary policy decision making under uncertainty. A large sample of economics students played a simple monetary policy game, both as individuals and in committees of five players. Our findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. We also attempt to establish why this is so. Some of the improvement is related to the ability of committees to strip out the effect of bad play, but there is a significant additional improvement, which we associate with players learning from each other’s interest rate decisions.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 1 (2005)
Issue (Month): 1 (May)

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Handle: RePEc:ijc:ijcjou:y:2005:q:2:a:5
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  1. Svensson, Lars & Woodford, Michael, 2000. "Indicator Variables for Optimal Policy," Seminar Papers 688, Stockholm University, Institute for International Economic Studies.
  2. Alan S. Blinder & John Morgan, 2000. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," NBER Working Papers 7909, National Bureau of Economic Research, Inc.
  3. Aoki, Kosuke, 2006. "Optimal commitment policy under noisy information," Journal of Economic Dynamics and Control, Elsevier, vol. 30(1), pages 81-109, January.
  4. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  5. Svensson, Lars E. O. & Woodford, Michael, 2001. "Indicator Variables for Optimal Policy under Asymmetric Information," Seminar Papers 689, Stockholm University, Institute for International Economic Studies.
  6. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
  7. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  8. repec:cup:cbooks:9780521456821 is not listed on IDEAS
  9. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
  10. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 649-665, 07.
  11. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
  12. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
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