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Rational Partisan Theory, Uncertainty and Spatial Voting:

Rational Partisan Theory, Uncertainty and Spatial Voting: Evidence for the Bank of England's MPC

Research output: Working paper

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Authors

  • A. Bhattacharjee
  • S. Holly

Research units

Info

Original languageEnglish
Place of publicationCambridge
PublisherFaculty of Economics, University of Cambridge
Publication date2010
Number of pages37
StatePublished

Publication series

NameCambridge Working Papers in Economics
Publisherhttp://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe1002.pdf
No.1002

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 rational partisan theory can explain spatial voting behaviour 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 labour markets. Further, spatial voting patterns clearly differentiates between internal and externally appointed members of the Monetary Policy Committee. The results have important implications for committee design and the conduct of monetary policy.

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