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Committees versus individuals: an experimental analysis of monetary policy decision-making

Author

Listed:
  • Clare Lombardelli
  • James Proudman
  • James Talbot

Abstract

The results of an experimental analysis of monetary policy decision-making under uncertainty are reported. A large sample of economically literate undergraduate and postgraduate students from the London School of Economics was used to play a simple monetary policy game, both as individuals and in committees of five players. The findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. An attempt was also made to establish why group decision-making is superior. The results show that some of the benefit is related to the ability of committees to strip out the effect of bad play in any given period. But there is a significant additional improvement, which is argued to be associated with the ability of committee members to share information and learn from each other by observing other members' interest rate responses. One surprising result is that the superiority of committee decision-making does not appear to be related to the ability to discuss the interest rate decision.

Suggested Citation

  • Clare Lombardelli & James Proudman & James Talbot, 2002. "Committees versus individuals: an experimental analysis of monetary policy decision-making," Bank of England working papers 165, Bank of England.
  • Handle: RePEc:boe:boeewp:165
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    References listed on IDEAS

    as
    1. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
    2. 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.
    3. Svensson, Lars E. O. & Woodford, Michael, 2003. "Indicator variables for optimal policy," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 691-720, April.
    4. Aoki, Kosuke, 2006. "Optimal commitment policy under noisy information," Journal of Economic Dynamics and Control, Elsevier, vol. 30(1), pages 81-109, January.
    5. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
    6. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821.
    7. 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.
    8. Svensson, Lars E. O. & Woodford, Michael, 2004. "Indicator variables for optimal policy under asymmetric information," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 661-690, January.
    9. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
    10. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
    11. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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