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

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Author Info

  • Stephen Hansen
  • Carlos Velasco Rivera
  • Michael McMahon

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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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2013/192013.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-19.

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Length: 43 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-19

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Keywords: Committees; Monetary policy;

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References

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  1. Christopher Spencer, 2006. "The Dissent Voting Behaviour of Bank of England MPC Members," School of Economics Discussion Papers 0306, School of Economics, University of Surrey.
  2. Sean Holly & Arnab Bhattacharjee, 2005. "Inflation Targeting, Committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Computing in Economics and Finance 2005 119, Society for Computational Economics.
  3. Francisco Ruge-Murcia & Alessandro Riboni, 2008. "Monetary Policy by Committee: Consensus, Chairman Dominance or Simple Majority?," 2008 Meeting Papers 142, Society for Economic Dynamics.
  4. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
  5. Timothy Besley & Neil Meads & Paolo Surico, 2008. "Insiders versus Outsiders in Monetary Policymaking," American Economic Review, American Economic Association, vol. 98(2), pages 218-23, May.
  6. Anne Sibert, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series 226, CESifo Group Munich.
  7. 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.
  8. Kiel, Alexandra & Gerling, Kerstin & Schulte, Elisabeth & Grüner, Hans Peter, 2003. "Information acquisition and decision making in committees: a survey," Working Paper Series 0256, European Central Bank.
  9. Mihov, Ilian & Sibert, Anne, 2006. "Credibility and Flexibility with Independent Monetary Policy Committees," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 23-46, February.
  10. Alan Blinder, 2006. "Monetary Policy by Committee: Why and How?," DNB Working Papers 092, Netherlands Central Bank, Research Department.
  11. Matias Iaryczower & Matthew Shum, 2012. "The Value of Information in the Court: Get It Right, Keep It Tight," American Economic Review, American Economic Association, vol. 102(1), pages 202-37, February.
  12. Orphanides, Athanasios, 2003. "Monetary policy evaluation with noisy information," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 605-631, April.
  13. 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.
  14. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
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Citations

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Cited by:
  1. Stephen Eliot Hansen & Michael McMahon, 2013. "Estimating Bayesian decision problems with heterogeneous priors," Economics Working Papers 1357, 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 136, Competitive Advantage in the Global Economy (CAGE).
  3. Hansen,Stephen & McMahon, Michael, 2013. "Estimating Bayesian Decision Problems with Heterogeneous Priors," CAGE Online Working Paper Series 127, Competitive Advantage in the Global Economy (CAGE).
  4. repec:cge:warwcg:126 is not listed on IDEAS
  5. repec:cge:warwcg:135 is not listed on IDEAS

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