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Inflation Targeting, Committee Decision Making and Uncertainty: The case of the Bank of England’s MPC

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  • Bhattacharjee, A.
  • Holly, S.

Abstract

Transparency and openness of the monetary policymaking process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee and the information on which they are based. We consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates. We find a role for asset prices through the equity market, foreign exchange market and housing prices. There are identifiable forms of heterogeneity among members of the committee that improves the predictability of interest rate changes. This can be thought of as supporting the argument that full transparency of monetary policy decision making can be welfare enhancing.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0530.

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Length: 36
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:cam:camdae:0530

Note: Ma, EM
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Web page: http://www.econ.cam.ac.uk/index.htm

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Keywords: Monetary policy; interest rates; Monetary Policy Committee; Committee decision making;

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Citations

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Cited by:
  1. Hansen, Stephen & McMahon, Michael, 2011. "How Experts Decide : Identifying Preferences versus Signals from Policy Decisions," The Warwick Economics Research Paper Series (TWERPS) 963, University of Warwick, Department of Economics.
  2. Roman Horváth & Kateøina Šmídková & Jan Zápal, 2011. "Central Banks’ Voting Records and Future Policy," Working Papers IES 2011/37, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2011.
  3. Stephen Hansen & Michael McMahon & Carlos Velasco Rivera, 2013. "How Expoerts Decide: Preferences or Private Assessments on a Monetary Policy Committee?," CESifo Working Paper Series 4201, CESifo Group Munich.
  4. Stephen Hansen & Michael F. McMahon, 2008. "Delayed Doves: MPC Voting Behaviour of Externals," CEP Discussion Papers dp0862, Centre for Economic Performance, LSE.
  5. Stephen Eliot Hansen & Michael McMahon, 2010. "What do outside experts bring to a committee? Evidence from the Bank of England," Economics Working Papers 1238, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Harris, Mark & Spencer, Christopher, 2008. "Decade of dissent: explaining the dissent voting behavior of Bank of England MPC members," MPRA Paper 9100, University Library of Munich, Germany.
  7. Brooks, Robert & Harris, Mark & Spencer, Christopher, 2007. "An Inflated Ordered Probit Model of Monetary Policy: Evidence from MPC Voting Data," MPRA Paper 8509, University Library of Munich, Germany.
  8. Arnab Bhattacharjee & Sean Holly, 2006. "Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC," CDMA Working Paper Series 200612, Centre for Dynamic Macroeconomic Analysis.

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