MPC Decision Making, the Long Expansion and the Crisis: Integration with global economy, Heterogeneity and Network dynamics

In this chapter, we consider the monetary policy decision-making process of the Bank of England’s MPC since 1997, as the UK economy moved through the phases of expansion, expansion pre-crisis when many commented unfavourably on developments in global financial and housing markets, but with very few getting the timing or the depth of the crisis right, and finally the crisis. We ask the question as to whether, and how the conduct of monetary policy may have changed over the period. Our empirical analyses are based on an economic model of MPC decisions, which admits heterogeneity among the members of the committee as well as network interactions within the MPC. Here heterogeneity does not arise so much from differences in preferences about inflation and output, but from differing views about the state of the economy. Based on data on voting records of individual MPC members, we investigate the nature of heterogeneity among members and the network structure between members, and how this can change over time, for the period 1997 to 2010.