Decade of dissent: explaining the dissent voting behavior of Bank of England MPC members

Harris, Mark and Spencer, Christopher (2008): Decade of dissent: explaining the dissent voting behavior of Bank of England MPC members.

Abstract

We examine the dissent voting record of the Bank of England Monetary Policy Committee (MPC) in its first decade. Probit estimates indicate the impact of career experience on dissent voting is negligible, whereas the impact of forecast inflation is pronounced. In addition to finding a role for dynamics, we also find a role for unobserved heterogeneity in the form of member-specific fixed-effects, suggesting previous literature characterizing voting behavior as largely determined by whether members are appointed from within or outside the ranks of Bank of England staff (internal and external members respectively) is overly simplistic.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank of England, Monetary Policy Committee, career background effects, dissent voting, unobserved heterogeneity
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C35 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions

References

Adolph, Christopher (2005). Three Simple Tests of Career Influences on Monetary Policy, Paper presented at the annual meeting of the American Political Science Association, Marriott Wardman Park, Omni Shoreham, Washington Hilton, Washington, DC, Sep 01, 2005.

Alesina, Alberto and Lawrence Summers (1993): “Central Bank Independence and Macroeconomic Performance,” Journal of Money, Credit and Banking, 25(2), pp.157-162.

Belden, Susan (1989): “Policy Preferences of FOMC Members as Revealed by Dissenting Votes,” Journal of Money, Credit and Banking, Vol.21, No.4, pp.432-441.

Bhattacharjee, Arnab and Sean Holly (2004): Inflation Targeting, Committee Decision Making and Uncertainty: The case of the Bank of England’s MPC, Cambridge Working Papers in Economics, University of Cambridge.

Blanchflower, David. (2006): Reflections on my first four votes on the MPC, speech given at the Bank of England’s Agency for Wales, Wednesday 27th September 2006.

Blinder, Alan. (2007): “Monetary Policy by Committee: Why and How?” European Journal of Political Economy, Vol.23, pp.106-123.

Blinder, Alan. and Charles Wyplosz (2004): Central Bank Talk: Committee Structure and Communication Policy, prepared for the session on “Central Bank Communication” at the ASSA meetings, Philadelphia, January 9th, 2005

Brooks, Robert., Mark Harris and Christopher Spencer (2007): An Inflated Ordered Model of Monetary Policy, mimeo.

Buiter, Willem. and Anne Sibert. (2001): “Designing a Monetary Authority,” in Challenges for Central Banking (ed. Anthony M. Santomero, Staffan Viotti and Andres Vredin), Kluwer Academic Publishers, Boston/Dordrecht/London, 2001, pp. 173-185.

Chappell, Henry. W. Jr., Thomas Havrilesky and Rob Roy McGregor (1993): “Partisan monetary policies: Presidential influence through the power of appointment,” Quarterly Journal of Economics, Vol 108, No.1, pp185-218.

Chappell, Henry. W. Jr., Rob Roy McGregor and Todd Vermilyea (2005): Committee Decisions on Monetary Policy, MIT Press. 23

Clarida, Richard., Jordi Gali, and Mark Gertler. (2000). “Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory.” Quarterly Journal of Economics, No.115, pp.147-180.

Cobham, David (2000): “Restoring trust at the Treasury,” Financial Times, 10th August 2000.

Cukierman, Alex., Steven B. Webb and Bilin Neyapti (1992): ’Measuring the Independence of Central Banks and its Effect on Policy Outcomes,’ World Bank Economic Review, Vol. 6(3), pp.353-98, September.

Edmonds, Timothy. (1999): The Monetary Policy Committee: Theory and Performance, House of Commons Research Paper, 99/17 (February)

Gerlach-Kristen, Petra. (2003): “Insiders and Outsiders at the Bank of England” Central Banking XIV(1), 96-102.

Gerlach-Kristen, Petra (2004): “Is the MPC’s voting record informative about future UK monetary policy?” Scandinavian Journal of Economics, No. 106 (2), pp.299-313.

Gerlach-Kristen, Petra (2007): Outsiders at the Bank of England’s MPC, unpublished paper, Swiss National Bank and University of Basel.

Gerling, Kerstin., Hans Peter Gruner., Alexandra Kiel. and Elisabeth Schulte (2003): Information Acquisition and Decision Making in Committees: A Survey, Working Paper No.256 (September), European Central Bank.

Goodhart, Charles A.E. (2001): “The inflation forecast,” National Institute Economic Review, No. 175 (January), pp.59-66.

Goodhart, Charles A.E. (2005) ‘The Monetary Policy Committee’s Reaction Function: An Exercise in Estimation’, Topics in Macroeconomics: Vol. 5: No. 1, Article 18.

Greene, William (2004): ‘The Behaviour of the Maximum Likelihood Estimator of Limited Dependent Variable Models in the Presence of Fixed Effects’, Econometrics Journal, Vol. 7, No.1, pp.98-119.

Grilli, Vittorio., Donato Masciandaro. and Guido Tabellini. (1991): “Political and Monetary Institutions and Public Financial Policies in the Industrial Countries,” Economic Policy, Vol.6 (October), pp.341-392.

Havrilesky, Thomas. M. and John Gildea. (1991): “The Policy Preferences of FOMC Members as Revealed by Dissenting Votes: A Comment,” Journal of Money, Credit and Banking, Vol.23, No.1, pp.130-138

Havrilesky, Thomas. M. and Robert Schweitzer. (1990): “A theory of FOMC dissent voting with evidence from the time series,” in T. Mayer (ed.), The Political Economy of American Monetary Policy, pp.197-210 (Ch.13), Cambridge University Press.

Heckman, J. (1981): “Statistical Models for Discrete Panel Data,” in Structural Analysis of Discrete Data with Econometric Applications, ed. by C. Manski, and D. McFadden. Cambridge: MIT Press.

Heiss, Florian (2007): Limited Dependent Panel Data Models with AR(1) error components in Stata, mimeo, University of Munich, Department of Economics (December).

Howard, Michael (2002): Speech to the Institute for Public Policy Research, Monday March 11, 2002.

Judson R.A. and Owen A.L. (1999). ‘Estimating dynamic panel data models: a guide for macroeconomists’, Economics Letters, Volume 65, Number 1, October 1999 , pp. 9-15(7).

Kiviet, Jan F. (1995). ‘On bias, inconsistency, and efficiency of various estimators in dynamic panel data models,’ Journal of Econometrics, Vol. 68(1), pp. 53-78, July.

Krause, George. A. (1996): ‘Agent Heterogeneity and Consensual Decision Making on the Federal Open Market Committee,’ Public Choice, Vol. 88(1-2), pp.83-101, July.

Long, J. Scott and Jeremy Freese (2000): “sg145: Scalar measures of fit for regression models,” Stata Technical Bulletin. Vol.56, pp.34–40. Reprinted in Stata Technical Bulletin Reprints, Vol.10, pp.197-205.

McCloskey, Diedre., and Stephen Ziliak (1996): “The Standard Error of Regressions,” Journal of Economic Literature 4 (March), pp.97-114.

Meade, E. Ellen. and Nathan Sheets. (2005): “Regional Influences on FOMC Voting Patterns,” Journal of Money, Credit and Banking, Vol.37, No.4, pp.661-677.

Meade, Ellen. E. and David Stasavage (2008): “Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve.” Economic Journal, Vol.118, No.525 (April), pp.695-717.

Nakahara, Nobuyuki (2001): Speech given by Nobuyuki Nakahara, member of the Policy Board of the Bank of Japan, at the Capital Markets Research Institute in Tokyo on December 11, 2001.

Neyman, J. and E. Scott (1948): “Consistent Estimates Based on Partially Consistent Observations,” Econometrica, Vol. 39, pp.359-382.

Nickell, Stephen (2006): “Monetary Policy, Demand and Inflation,” Bank of England Quarterly Bulletin, Spring, 46(1), pp.95-104.

Rogoff, Kenneth (1985): “The Optimal Degree of Commitment to an Intermediate Monetary Target,” Quarterly Journal of Economics, 100, pp.1169-1190.

Scharfstein, David. S. and Jeremy. C. Stein. (1990):“Herd Behavior and Investment,” American Economic Review, Vol. 80, No. 3 (June), pp.465-479.

Sibert, Anne. (2003): “Monetary Policy Committees: Individual and Collective Reputations,” Review of Economic Studies, Vol.70, pp.649-665.

Spencer, Christopher (2006): Reaction Functions of Bank of England MPC Members: Insiders versus Outsiders, Discussion Paper 15/05, Department of Economics, University of Surrey.

Taylor, John B.(1993): “Discretion Versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp.195-214.

Wadhwani, Sushil. B. (2002): The MPC: Some further challenges, speech delivered at the National Institute of Economic and Social Research Governors’ Seminar, in London on Thursday, 16th May 2002.

Wallis, Kenneth. F. (2002): Chi-squared tests of interval and density forecasts, and the Bank of England’s fan charts, mimeo, University of Warwick (March).

Wooldridge, Jeffrey (2002). Econometric Analysis of Cross Section and Panel Data, MIT Press (Cambridge, Massachusetts, U.S.A.).

Wooldridge, Jeffrey. (2005): “Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity,” Journal of Applied Econometrics, Vol. 20(1), pages 39-54.