Taking Personalities Out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England's MPC

Abstract:     
The transparency of the monetary policymaking process at the Bank of England has provided very detailed data on both the votes of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider interval censored responses of individual committee members in the context of a model in which inflation forecast targeting is used but there is both heterogeneity and interaction among the members of the committee. We find substantial heterogeneity in the policy reaction function across members. Further, we identify significant interactions between individual decisions of the committee members. The nature of these interdependencies inform about information sharing and strategic interactions within the Bank of England's Monetary Policy Committee.

Keywords: Monetary policy, Interest rates, Committee decision making, Expectation-Maximisation Algorithm, Spatial Weights Matrix, Spatial Error Model

JEL Classifications: E42, E43, E50, E58, C31, C34

Working Paper Series