MPC Voting, Forecasting and Inflation
AbstractThis paper considers the effectiveness of monetary policy committee voting when the inflation forecast signals, upon which decisions are based, may be subject to manipulation. Using a discrete time intertemporal model, we examine the distortions resulting from such manipulation under a three-way voting system, similar to that used by the Bank of Sweden. We find that voting itself creates persistence in inflation. Whilst altering the forecast signal, even if well intentioned, results in a diminished probability of achieving the inflation target. However, if committee members ‘learn’ in a Bayesian manner, this problem is mitigated.
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Bibliographic InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/23.
Date of creation: Oct 2012
Date of revision: Jan 2013
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Find related papers by JEL classification:
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-CBA-2012-10-27 (Central Banking)
- NEP-CDM-2012-10-27 (Collective Decision-Making)
- NEP-FOR-2012-10-27 (Forecasting)
- NEP-MAC-2012-10-27 (Macroeconomics)
- NEP-MON-2012-10-27 (Monetary Economics)
- NEP-POL-2012-10-27 (Positive Political Economics)
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