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

Centre for Dynamic Macroeconomic Analysis Working Paper No. 0503

32 Pages Posted: 9 May 2005

See all articles by Sean Holly

Sean Holly

University of Cambridge - Department of Applied Economics

Arnab Bhattacharjee

University of St. Andrews - School of Management

Date Written: February 2005

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 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.

Keywords: Monetary policy, interest rates, monetary policy committee, committee decision making

JEL Classification: E420, E430, E500

Suggested Citation

Holly, Sean and Bhattacharjee, Arnab, Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England's Mpc (February 2005). Centre for Dynamic Macroeconomic Analysis Working Paper No. 0503, Available at SSRN: https://ssrn.com/abstract=717943 or http://dx.doi.org/10.2139/ssrn.717943

Sean Holly (Contact Author)

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Arnab Bhattacharjee

University of St. Andrews - School of Management ( email )

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