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

  • Brooks, Robert
  • Harris, Mark
  • Spencer, Christopher

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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