First Impressions Matter: Signalling as a Source of Policy Dynamics
affiliation not provided to SSRN
Michael F. McMahon
University of Warwick - Faculty of Social Studies; London School of Economics & Political Science (LSE)
April 19, 2012
CESifo Working Paper Series No. 3782
We first establish that policymakers on the Bank of England’s Monetary Policy Committee choose lower interest rates with experience. We then reject increasing confidence in private information or learning about the structure of the macroeconomy as explanations for this shift. Instead, a model in which voters signal their hawkishness to observers better fits the data. The motivation for signalling is consistent with wanting to control inflation expectations, but not career concerns or pleasing colleagues. There is also no evidence of capture by industry. The paper suggests that policy-motivated reputation building may be important for explaining dynamics in experts’ policy choices.
Number of Pages in PDF File: 40
Keywords: signalling, learning, monetary policy
JEL Classification: D780, E520working papers series
Date posted: April 19, 2012
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