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Insiders versus Outsiders in Monetary Policymaking

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  • Timothy Besley
  • Neil Meads
  • Paolo Surico

Abstract

This paper looks at the voting patterns of internal and external members of the MPC to investigate how far there are differences between insiders and outsiders. We make three contributions. First, we assess the extent to which the Bank of England internally generated forecasts explain the MPC members' voting decisions. This is important as generating forecasts on a quarterly basis is a key part of the process used by the Bank of England. The forecast for inflation is made public in the Inflation Report while the output gap forecast is not. Second, we use a random coefficient method of estimation in which the parameters of the interest rate rule are allowed, but not required, to be different across members. Third, we find evidence of some heterogeneity in the intercept, a measure of experience on the MPC and the interest rate smoothing parameter, but no significant differences in the members' reaction to the forecasts of inflation and the output gap.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.2.218
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 98 (2008)
Issue (Month): 2 (May)
Pages: 218-23

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Handle: RePEc:aea:aecrev:v:98:y:2008:i:2:p:218-23

Note: DOI: 10.1257/aer.98.2.218
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  1. Simon Hix & Bjorn Hoyland & Nick Vivyan, 2007. "From doves to hawks: a spatial analysis of voting in the Monetary Policy Committee of the Bank of England, 1997-2007," LSE Research Online Documents on Economics 25199, London School of Economics and Political Science, LSE Library.
  2. Christopher Spencer, 2006. "The Dissent Voting Behaviour of Bank of England MPC Members," School of Economics Discussion Papers 0306, School of Economics, University of Surrey.
  3. Stephen Hansen & Michael McMahon, 2008. "Delayed doves: MPC voting behaviour of externals," LSE Research Online Documents on Economics 19611, London School of Economics and Political Science, LSE Library.
  4. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  5. Alessandro Riboni & Francisco Ruge-Murcia, 2007. "Preference heterogeneity in monetary policy committees," DNB Working Papers 157, Netherlands Central Bank, Research Department.
  6. Groth, Charlotta & Wheeler, Tracy, 2008. "The behaviour of the MPC: Gradualism, inaction and individual voting patterns," Discussion Papers 21, Monetary Policy Committee Unit, Bank of England.
  7. Christopher Spencer, 2006. "Reaction Functions of Bank of England MPC Members: Insiders versus Outsiders," School of Economics Discussion Papers 0606, School of Economics, University of Surrey.
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