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Delayed doves: MPC voting behaviour of externals

Hansen, Stephen and McMahon, Michael (2008) Delayed doves: MPC voting behaviour of externals. CEPDP, 862. Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 9780853282587

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Abstract

The use of independent committees for the setting of interest rates, such as the Monetary Policy Committee (MPC) at the Bank of England, is quickly becoming the norm in developed economies. In this paper we examine the issue of appointing external members (members who are outside the staff of the central bank) to these committees. We construct a model of MPC voting behaviour, and show that members who begin voting for similar interest rates should not systematically diverge from each other at any future point. However, econometric results in fact show that external members initially vote in line with internal members, but after a year, begin voting for substantially lower interest rates. The robustness of this effect to including member fixed effects provides strong evidence that externals behave differently from internals because of institutional differences between the groups, and not some unobserved heterogeneity. We then examine whether career concerns can explain these findings, and conclude that they cannot.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2008 the authors
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D71 - Social Choice; Clubs; Committees; Associations
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 862
Date Deposited: 17 Jul 2008 14:44
URL: http://eprints.lse.ac.uk/19611/

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