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First Impressions Matter: Signalling as a Source of Policy Dynamics

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  • Stephen Hansen
  • Michael McMahon

Abstract

We first establish that policymakers on the Bank of England’s Monetary Policy Committee choose lower interest rates with experience. We then reject increasing confidence in private information or learning about the structure of the macroeconomy as explanations for this shift. Instead, a model in which voters signal their hawkishness to observers better fits the data. The motivation for signalling is consistent with wanting to control inflation expectations, but not career concerns or pleasing colleagues. There is also no evidence of capture by industry. The paper suggests that policy-motivated reputation building may be important for explaining dynamics in experts’ policy choices

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-04/cesifo1_wp3782.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3782.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3782

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Related research

Keywords: signalling; learning; monetary policy;

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References

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  1. Stephen Hansen & Michael F. McMahon, 2008. "Delayed Doves: MPC Voting Behaviour of Externals," CEP Discussion Papers dp0862, Centre for Economic Performance, LSE.
  2. Anne Sibert, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series 226, CESifo Group Munich.
  3. Ehud Kalai & Ehud Lehrer, 1992. "Weak and Strong Merging of Opinions," Discussion Papers 983, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. James B. Bullard & Stefano Eusepi, 2004. "Did the Great Inflation occur despite policymaker commitment to a Taylor rule?," Working Papers 2003-013, Federal Reserve Bank of St. Louis.
  5. Stephen Hansen & Michael McMahon, 2011. "How Experts Decide: Identifying Preferences versus Signals from Policy Decisions," CEP Discussion Papers dp1063, Centre for Economic Performance, LSE.
  6. Besley, Timothy & Meads, Neil & Surico, Paolo, 2007. "Insiders versus Outsiders in Monetary Policy-Making," Discussion Papers 20, Monetary Policy Committee Unit, Bank of England.
  7. Giorgio Primiceri, 2005. "Why Inflation Rose and Fell: Policymakers' Beliefs and US Postwar Stabilization Policy," NBER Working Papers 11147, National Bureau of Economic Research, Inc.
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Cited by:
  1. Matthias Neuenkirch, 2012. "Establishing a Hawkish Reputation: Interest Rate Setting by Newly Appointed Central Bank Governors," MAGKS Papers on Economics 201246, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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