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RATIONAL PARTISAN THEORY, UNCERTAINTY, AND SPATIAL VOTING: EVIDENCE FOR THE BANK OF ENGLAND'S MPC
Author(s) -
BHATTACHARJEE ARNAB,
HOLLY SEAN
Publication year - 2010
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/j.1468-0343.2009.00361.x
Subject(s) - voting , transparency (behavior) , monetary policy , economics , rational expectations , openness to experience , inflation (cosmology) , context (archaeology) , interest rate , asset (computer security) , forward guidance , monetary economics , inflation targeting , macroeconomics , financial economics , econometrics , political science , credit channel , computer science , politics , law , psychology , social psychology , paleontology , physics , computer security , theoretical physics , biology
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.