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Delayed Doves: MPC Voting Behaviour of Externals

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Author Info
Stephen Hansen
Michael F. McMahon

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Abstract

The use of independent committees for the setting of interest rates, such as the MonetaryPolicy Committee (MPC) at the Bank of England, is quickly becoming the norm in developedeconomies. In this paper we examine the issue of appointing external members (memberswho are outside the staff of the central bank) to these committees. We construct a model ofMPC voting behaviour, and show that members who begin voting for similar interest ratesshould not systematically diverge from each other at any future point. However, econometricresults in fact show that external members initially vote in line with internal members, butafter a year, begin voting for substantially lower interest rates. The robustness of this effect toincluding member fixed effects provides strong evidence that externals behave differentlyfrom internals because of institutional differences between the groups, and not someunobserved heterogeneity. We then examine whether career concerns can explain thesefindings, and conclude that they cannot.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0862.

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Date of creation: Apr 2008
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Handle: RePEc:cep:cepdps:dp0862

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Related research
Keywords: Monetary Policy Committee (MPC); Bank of England; Committee Voting; Signalling;

Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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  5. Christopher Spencer, 2006. "Reaction Functions of Bank of England MPC Members: Insiders versus Outsiders," Department of Economics Discussion Papers 0606, Department of Economics, University of Surrey. [Downloadable!]
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  7. Clare Lombardelli & James Proudman & James Talbot, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision-Making," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May. [Downloadable!]
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  9. Marco Ottaviani & Peter Sorensen, 2000. "Herd Behavior and Investment: Comment," American Economic Review, American Economic Association, vol. 90(3), pages 695-704, June. [Downloadable!] (restricted)
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  11. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
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  14. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February. [Downloadable!] (restricted)
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  16. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Blackwell Publishing, vol. 70(3), pages 649-665, 07. [Downloadable!] (restricted)
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  17. Petra M. Geraats, 2006. "Transparency of Monetary Policy: Theory and Practice," CESifo Economic Studies, Oxford University Press, vol. 52(1), pages 111-152, March. [Downloadable!] (restricted)
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  18. Lombardelli, Clare & Proudman, James & Talbot, James, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making," MPRA Paper 823, University Library of Munich, Germany. [Downloadable!]
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  20. 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 0612, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
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