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Rational Partisan Theory, Uncertainty and Spatial Voting: Evidence for the Bank of England’s MPC

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  • Bhattacharjee, A.
  • Holly, S.

Abstract

The 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. In this paper 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 rational partisan theory can explain spatial voting behaviour under forecast uncertainty about the output gap. Internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates, in combination with uncertainty in the macroeconomic environment. There is also a role for developments in asset housing and labour markets. Further, spatial voting patterns clearly differentiates between internal and externally appointed members of the Monetary Policy Committee. The results have important implications for committee design and the conduct of monetary policy.

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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 1002.

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Date of creation: 22 Jan 2010
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Handle: RePEc:cam:camdae:1002

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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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Cited by:
  1. Bhattacharjee, A. & Holly, S., 2010. "Understanding Interactions in Social Networks and Committees," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1003, Faculty of Economics, University of Cambridge.
  2. Roman Horváth & Kateřina Šmídková & Jan Zápal, 2012. "Central Banks' Voting Records and Future Policy," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 316, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  3. Eijffinger, Sylvester C W & Mahieu, Ronald J & Raes, Louis, 2013. "Inferring hawks and doves from voting records," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9418, C.E.P.R. Discussion Papers.
  4. Arnab Bhattacharjee & Sean Holly, 2011. "Structural interactions in spatial panels," Empirical Economics, Springer, Springer, vol. 40(1), pages 69-94, February.
  5. Schultefrankenfeld, Guido, 2010. "Forecast uncertainty and the Bank of England interest rate decisions," Discussion Paper Series 1: Economic Studies 2010,27, Deutsche Bundesbank, Research Centre.
  6. Roman Horváth & Kateøina Šmídková & Jan Zápal & Marek Rusnák, 2012. "Dissent Voting Behavior of Central Bankers: What Do We Really Know?," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2012/05, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2012.

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