TY - JOUR
T1 - Rational partisan theory, uncertainty, and spatial voting
T2 - Evidence for the Bank of England's MPC
AU - Bhattacharjee, Arnab
AU - Holly, Sean
PY - 2010/7
Y1 - 2010/7
N2 - The transparency and openness of the monetary policy-making process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee (MPC) 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 rational partisan theory can explain spatial voting behavior under forecast uncertainty about the output gap. Internally generated forecasts of output and market-generated expectations of medium-term inflation provide the best description of discrete changes in interest rates, in combination with uncertainty in the macroeconomic environment. There is also a role for developments in asset, housing and labor markets. Further, spatial voting patterns clearly differentiate between internally and externally apzpointed members of the MPC. The results have important implications for committee design and the conduct of monetary policy. © 2009 Blackwell Publishing Ltd.
AB - The transparency and openness of the monetary policy-making process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee (MPC) 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 rational partisan theory can explain spatial voting behavior under forecast uncertainty about the output gap. Internally generated forecasts of output and market-generated expectations of medium-term inflation provide the best description of discrete changes in interest rates, in combination with uncertainty in the macroeconomic environment. There is also a role for developments in asset, housing and labor markets. Further, spatial voting patterns clearly differentiate between internally and externally apzpointed members of the MPC. The results have important implications for committee design and the conduct of monetary policy. © 2009 Blackwell Publishing Ltd.
U2 - 10.1111/j.1468-0343.2009.00361.x
DO - 10.1111/j.1468-0343.2009.00361.x
M3 - Article
SN - 1468-0343
VL - 22
SP - 151
EP - 179
JO - Economics and Politics
JF - Economics and Politics
IS - 2
ER -