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Central Banking by Committee

  • Sibert, Anne

There is a small, but growing, economics literature on the importance and effects of having monetary policy made by a committee, rather than by an individual. Complimenting this is an older and larger body of literature on groups in the other social sciences, particular in social psychology. This paper provides a review of some of this work, focussing on two important features of committees: the effect of their size on performance and whether or not they are more moderate than the members who make them up. The results of the literature on committee size and committee polarization suggest that the ideal monetary policy committee may not have many more than five members. It should have a well-defined objective and it should publish the votes of its members. It should be structured so that members do not act as part of a group, perhaps by having short terms in office and members from outside the central bank. External scrutiny of the decision-making process should be encouraged.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5626.

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Date of creation: Apr 2006
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Handle: RePEc:cpr:ceprdp:5626
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  1. Hao Li & Sherwin Rosen & Wing Suen, 1999. "Conflicts and Common Interests in Committees," NBER Working Papers 7158, National Bureau of Economic Research, Inc.
  2. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
  3. Eduardo Ley & Mark F.J. Steel, 1998. "A model of management teams," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(6), pages 355-363.
  4. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  5. 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.
  6. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 183-98, January.
  7. Drora Karotkin & Jacob Paroush, 2003. "Optimum committee size: Quality-versus-quantity dilemma," Social Choice and Welfare, Springer, vol. 20(3), pages 429-441, 06.
  8. Cason, Timothy N & Mui, Vai-Lam, 1997. "A Laboratory Study of Group Polarisation in the Team Dictator Game," Economic Journal, Royal Economic Society, vol. 107(444), pages 1465-83, September.
  9. Whyte, Glen, 1993. "Escalating Commitment in Individual and Group Decision Making: A Prospect Theory Approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 54(3), pages 430-455, April.
  10. Gerlach-Kristen, Petra, 2005. "Too little, too late: Interest rate setting and the costs of consensus," Economics Letters, Elsevier, vol. 88(3), pages 376-381, September.
  11. Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
  12. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
  13. Lombardelli, Clare & Proudman, James & Talbot, James, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making," MPRA Paper 823, University Library of Munich, Germany.
  14. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  15. Christopher J. Waller, 2000. "Policy Boards And Policy Smoothing," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 305-339, February.
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