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

  • Arnab Bhattacharjee
  • Sean Holly

    ()

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.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200503.

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Date of creation: 15 Feb 2005
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Handle: RePEc:san:cdmawp:0503
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  1. James B. Bullard & Eric Schaling, 2002. "Why the Fed should ignore the stock market," Review, Federal Reserve Bank of St. Louis, issue Mar., pages 35-42.
  2. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
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  12. Chadha, Jagjit S. & Nolan, Charles, 2001. "Inflation Targeting, Transparency and Interest Rate Volatility: Ditching Monetary Mystique in the U.K," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 349-366, July.
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  21. repec:cup:cbooks:9780521264440 is not listed on IDEAS
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