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Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England’s MPC

Author

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  • Arnab Bhattacharjee
  • Sean Holly

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Abstract

The transparency and openness of the monetary policymaking process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates. We also find a role for asset prices through the equity market, foreign exchange market and housing prices. There are also identifiable forms of heterogeneity among members of the committee that improves the predictability of interest rate changes. This can be thought of as supporting the argument that full transparency of monetary policy decision making can be welfare enhancing.

Suggested Citation

  • Arnab Bhattacharjee & Sean Holly, 2005. "Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England’s MPC," CDMA Working Paper Series 200503, Centre for Dynamic Macroeconomic Analysis.
  • Handle: RePEc:san:cdmawp:0503
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/CDMA/papers/wp0503.pdf
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    References listed on IDEAS

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    Cited by:

    1. Nojković, Aleksandra & Petrović, Pavle, 2015. "Monetary policy rule in inflation targeting emerging European countries: A discrete choice approach," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 577-595.

    More about this item

    Keywords

    Intertemporal macro; Monetary policy; interest rates; monetary policy committee; committee decision making.;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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