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

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

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.

Suggested Citation

  • Brooks, Robert & Harris, Mark & Spencer, Christopher, 2007. "An Inflated Ordered Probit Model of Monetary Policy: Evidence from MPC Voting Data," MPRA Paper 8509, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8509
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    File URL: https://mpra.ub.uni-muenchen.de/8509/1/MPRA_paper_8509.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. El-Shagi, Makram & von Schweinitz, Gregor, 2017. "Why they keep missing: An empirical investigation of rational inattention of rating agencies," IWH Discussion Papers 1/2017, Halle Institute for Economic Research (IWH).
    2. Charemza, Wojciech & Ladley, Daniel, 2016. "Central banks’ forecasts and their bias: Evidence, effects and explanation," International Journal of Forecasting, Elsevier, vol. 32(3), pages 804-817.
    3. Roman Horváth & Katerina Šmídková & Jan Zápal, 2012. "Central Banks' Voting Records and Future Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 8(4), pages 1-19, December.
    4. William H. Greene & David A. Hensher, 2008. "Modeling Ordered Choices: A Primer and Recent Developments," Working Papers 08-26, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Groth, Charlotta & Wheeler, Tracy, 2008. "The behaviour of the MPC: Gradualism, inaction and individual voting patterns," Discussion Papers 21, Monetary Policy Committee Unit, Bank of England.
    6. Wojciech Charemza & Daniel Ladley, 2012. "MPC Voting, Forecasting and Inflation," Discussion Papers in Economics 12/23, Department of Economics, University of Leicester, revised Jan 2013.

    More about this item

    Keywords

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

    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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