Rational partisan theory, uncertainty, and spatial voting: Evidence for the Bank of England's MPC

A. Bhattacharjee, Sean Holly

    Research output: Working paper

    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 rational partisan theory can explain spatial voting behaviour 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 labour markets. Further, spatial voting patterns clearly differentiates between internal and externally appointed members of the Monetary Policy Committee. The results have important implications for committee design and the conduct of monetary policy.
    Original languageEnglish
    Place of PublicationCambridge
    PublisherUniversity of Cambridge
    Publication statusPublished - 2010

    Publication series

    NameCambridge Working Papers in Economics

    Keywords

    • monetary policy
    • interest rates
    • Monetary Policy Committee
    • committee decision making

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    Bhattacharjee, A., & Holly, S. (2010). Rational partisan theory, uncertainty, and spatial voting: Evidence for the Bank of England's MPC. (Cambridge Working Papers in Economics). University of Cambridge.