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An Inflated Ordered Probit Model of Monetary Policy: Evidence from MPC Voting Data

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Author Info
Brooks, Robert
Harris, Mark
Spencer, Christopher

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Abstract

Even in the face of a continuously changing economic environment, interest rates often remain unadjusted for long periods. When rates are moved, the norm is for a series of small unidirectional discrete basis-point changes. To explain these phenomena we suggest a two-equation system combining a “long-run” equation explaining a binary decision to change or not change the interest-rate, and a “shortrun” one based on a simple monetary policy rule. We account for unobserved heterogeneity in both equations, applying the model to unique unit-record level data on the voting preferences of Bank of England Monetary Policy Committee (MPC) members.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8509.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:8509

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Keywords: Interest rates voting discrete data ordered models inflated outcomes monetary policy committee

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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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  21. Eijffinger, Sylvester C W & Schaling, Eric & Verhagen, Willem, 1999. "A Theory of Interest Rate Stepping: Inflation Targeting in a Dynamic Menu Cost Model," CEPR Discussion Papers 2168, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  22. Dolado, Juan J. & Maria-Dolores, Ramon & Naveira, Manuel, 2005. "Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve," European Economic Review, Elsevier, vol. 49(2), pages 485-503, February. [Downloadable!] (restricted)
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