Do We Really Need a Fed Chairman?

Whether it's a chairman, president, or governor, nearly all central banks around the world have monetary policy committees led by a single person.

But Alan Blinder of Princeton and John Morgan of Berkeley wonder if Bernanke, Trichet, or King actually add value to the decisions made by their committees. (free version)

They designed a game where two groups of players, one with a designated leader and one without, make monetary policy decisions based on a system set up by Blinder and Morgan.

Before each group game, students played the simulation on their own and was scored based on how close he/she got to predetermined targets for inflation and unemployment. The student with the best score was given the leadership position in the group rounds that had designated leaders.

The researchers found that groups with clearly defined leaders did no better, and sometimes worse, than leaderless groups. A better predictor of performance was the average ability among the players in a group.

But before we demand that the F.O.M.C. be reorganized, there are a couple of big caveats with the study.

First, unlike in the real world where central banker Jones might be a hawk while central banker Smith might be a dove, all the players in Blinder and Morgan's simulation had the same objective. Second, while the experiment's design rewarded intellect (by giving the player with the best score the role of chairman in the group games), Greenspan and Bernanke probably got their positions for other reasons beyond their cognitive abilities.