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Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC

Author Info

Listed author(s):
  • Arnab Bhattacharjee
  • Sean Holly

Abstract

The transparency of the monetary policymaking process at the Bank of England has provided very detailed data on both the votes of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider interval censored responses of individual committee members in the context of a model in which inflation forecast targeting is used but there is both heterogeneity and interaction among the members of the committee. We find substantial heterogeneity in the policy reaction function across members. Further, we identify significant interactions between individual decisions of the committee members. The nature of these interdependencies inform about information sharing and strategic interactions within the Bank of England’s Monetary Policy Committee.

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File URL: http://www.st-andrews.ac.uk/~wwwecon/CDMA/papers/wp0612.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200612.

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Date of creation: 15 Dec 2006
Handle: RePEc:san:cdmawp:0612
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School of Economics and Finance, University of St. Andrews, Fife KY16 9AL

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Keywords: Monetary policy; Interest rates; Committee decision making; Expectation-Maximisation Algorithm; Spatial Weights Matrix; Spatial Error Model.;

Find related papers by 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
  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
  • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
  • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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  1. David Cobham, 2003. "Why does the Monetary Policy Committee smooth interest rates?," Oxford Economic Papers, Oxford University Press, vol. 55(3), pages 467-493, July.
  2. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
  3. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
  4. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
  5. Otmar Issing, 2002. "Monetary Policy In A World of Uncertainty," Economie Internationale, CEPII research center, issue 92, pages 165-179.
  6. Belden, Susan, 1989. "Policy Preferences of FOMC Members as Revealed by Dissenting Votes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 432-441, November.
  7. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
  8. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  9. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
  10. Arnab Bhattacharjee & Chris Jensen-Butler, 2005. "Estimation of Spatial Weights Matrix in a Spatial Error Model, with an Application to Diffusion in Housing Demand," CRIEFF Discussion Papers 0519, Centre for Research into Industry, Enterprise, Finance and the Firm.
  11. 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.
  12. Pearlman, Joseph G., 1992. "Reputational and nonreputational policies under partial information," Journal of Economic Dynamics and Control, Elsevier, vol. 16(2), pages 339-357, April.
  13. Orphanides, Athanasios, 2003. "Monetary policy evaluation with noisy information," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 605-631, April.
  14. Sibert, Anne, 2002. "Monetary policy with uncertain central bank preferences," European Economic Review, Elsevier, vol. 46(6), pages 1093-1109, June.
  15. EllenE. Meade & David Stasavage, 2008. "Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve," Economic Journal, Royal Economic Society, vol. 118(528), pages 695-717, 04.
  16. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
  17. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-538, June.
  18. Jamie Gascoigne & Paul Turner, 2004. "Asymmetries in Bank of England monetary policy," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 615-618.
  19. Luisa Corrado & Sean Holly, 2004. " Habit Formation and Interest Rate Smoothing," CDMA Conference Paper Series 0404, Centre for Dynamic Macroeconomic Analysis.
  20. Robert Jennrich, 2004. "Derivative free gradient projection algorithms for rotation," Psychometrika, Springer;The Psychometric Society, vol. 69(3), pages 475-480, September.
  21. John Geanakoplos, 1992. "Common Knowledge," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 53-82, Fall.
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