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How Expoerts Decide: Preferences or Private Assessments on a Monetary Policy Committee?

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  • Stephen Hansen
  • Michael McMahon
  • Carlos Velasco Rivera

Abstract

Using voting data from the Bank of England, we show that different individual assessments of the economy strongly influence votes after controlling for individual policy preferences. We estimate that internal members form more precise assessments than externals and are also more hawkish, though preference differences are very small if members vote strategically. Counterfactual analysis shows that committees add value through aggregating private assessments, but that gains to larger committees taper off quickly beyond five members. There is no evidence that externals add value through preference moderation. Since their assessments also have lower precision, mixed committees may not be optimal.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4201.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4201

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Keywords: committees; monetary policy;

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References

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  1. Besley, Timothy & Meads, Neil & Surico, Paolo, 2007. "Insiders versus Outsiders in Monetary Policy-Making," Discussion Papers, Monetary Policy Committee Unit, Bank of England 20, Monetary Policy Committee Unit, Bank of England.
  2. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, Elsevier, vol. 21(3), pages 563-597, September.
  3. Alan S. Blinder, 2005. "Monetary Policy by Committee: Why and How?," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 84, Princeton University, Department of Economics, Center for Economic Policy Studies..
  4. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(5), pages 789-811, October.
  5. Bhattacharjee, A. & Holly, S., 2005. "Inflation Targeting, Committee Decision Making and Uncertainty: The case of the Bank of England’s MPC," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0530, Faculty of Economics, University of Cambridge.
  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. Christopher Spencer, 2006. "The Dissent Voting Behaviour of Bank of England MPC Members," School of Economics Discussion Papers, School of Economics, University of Surrey 0306, School of Economics, University of Surrey.
  8. Orphanides, Athanasios, 2003. "Monetary policy evaluation with noisy information," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 605-631, April.
  9. Matias Iaryczower & Matthew Shum, 2012. "The Value of Information in the Court: Get It Right, Keep It Tight," American Economic Review, American Economic Association, American Economic Association, vol. 102(1), pages 202-37, February.
  10. Riboni, Alessandro & Ruge-Murcia, Francesco, 2010. "Monetary Policy by Committee : Consensus, Chairman Dominance or Simple Majority ?," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/7683, Paris Dauphine University.
  11. Anne Sibert, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series 226, CESifo Group Munich.
  12. Mihov, Ilian & Sibert, Anne, 2006. "Credibility and Flexibility with Independent Monetary Policy Committees," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(1), pages 23-46, February.
  13. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
  14. 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, International Journal of Central Banking, vol. 1(1), May.
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Cited by:
  1. Stephen Eliot Hansen & Michael McMahon & Andrea Prat, 2014. "Transparency and deliberation within the FOMC: A computational linguistics approach," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1425, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Hansen,Stephen & McMahon, Michael, 2013. "Estimating Bayesian Decision Problems with Heterogeneous Priors," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 127, Competitive Advantage in the Global Economy (CAGE).

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