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Making Monetary Policy by Committee

I was Vice Chairman of the Federal Reserve Board while I was preparing my Marshall Lectures for delivery at Cambridge in 1995. So I asked the Board staff to research what had been written about making monetary policy by committees -- as opposed to by individuals. Although they were (and remain) a knowledgeable and thorough bunch, they unearthed almost nothing. So when I delivered the Robbins Lectures at the London School of Economics the following year,1 this is what I concluded on the subject: My own hunch is that, on balance, the additional monetary policy inertia imparted by group decision making provides a net benefit to society? But my main point is simpler: My experience as a member of the FOMC left me with a strong feeling that the theoretical fiction that monetary policy is made by a single individual maximizing a well-defined preference function misses something important. In my view, monetary theorists should start paying some attention to the nature of decision making by committee, which is rarely mentioned in the academic literature. (Blinder (1998), p. 22) I made reference in that lecture to only one paper on the subject, Faust's (1996) clever model of the seemingly-odd construction of the FOMC, though I should have cited Waller's (1992) earlier work as well. (Mea culpa.) My point is that, up to then, there had been hardly any research on committee decision making. Fortunately, that is no longer the case. By the time of my three Okun lectures at Yale in 2002 (Blinder (2004)), the subject merited a whole lecture, including references to about ten papers on the subject -- and I missed some. (Mea culpa again.) The literature has continued to grow since then, including seven papers at a Netherlands Central Bank conference in 2005 and eleven papers at a Bank of Norway conference last year. The study of central banking by committee thus appears to be a growth industry, albeit a small one.