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

  • Lombardelli, Clare
  • Proudman, James
  • Talbot, James

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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File URL: http://mpra.ub.uni-muenchen.de/823/1/MPRA_paper_823.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 823.

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Date of creation: 08 Feb 2005
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Publication status: Published in International Journal of Central Banking Number 1.Volume(2005): pp. 181-205
Handle: RePEc:pra:mprapa:823
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Web page: http://mpra.ub.uni-muenchen.de

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  1. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  2. Svensson, Lars & Woodford, Michael, 2000. "Indicator Variables for Optimal Policy," Seminar Papers 688, Stockholm University, Institute for International Economic Studies.
  3. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 649-665, 07.
  4. Alan S. Blinder & John Morgan, 2001. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," Working Papers 130, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
  6. 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.
  7. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
  8. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  9. Aoki, Kosuke, 2002. "Optimal Commitment Policy Under Noisy Information," CEPR Discussion Papers 3370, C.E.P.R. Discussion Papers.
  10. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
  11. 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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