Hansen, Stephen and McMahon, Michael F. (2010) What do outside experts bring to a committee? : evidence from the Bank of England. Working Paper. University of Warwick. Dept. of Economics, Coventry.

PDF WRAP_Hansen_twerp_946.pdf - Draft Version - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (667Kb)

Abstract

We test whether outside experts have information not available to insiders by using the voting record of the Bank of England's Monetary Policy Committee. Members with more private information should vote more often against conventional wisdom, which we measure as the average belief of market economists about future interest rates. We nd evidence that external members indeed have information not available to internals, but also use a quasi-natural experiment to show they may exaggerate their expertise to obtain reappointment. This implies that an optimal committee, even outside monetary policy, should potentially include outsiders, but needs to manage career concerns.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Bank of England. Monetary Policy Committee, Committees, Voting, Monetary policy
Series Name:	Warwick economics research paper series (TWERPS)
Publisher:	University of Warwick. Dept. of Economics
Place of Publication:	Coventry
Date:	2010
Volume:	Vol.2010
Number:	No.946
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	Austen-Smith, D., and J. S. Banks (1996): "Information Aggregation, Rationality, and the Condorcet Jury Theorem," American Political Science Review, 90(1), 34-45. Baltagi, B. (2005): Econometric Analysis of Panel Data. John Wiley and Sons, New York, New York, third edn. Bank of England (2010a): http://www.bankofengland.co.uk/monetarypolicy/overview.htm, last accessed 15 September 2010. (2010b): http://www.bankofengland.co.uk/monetarypolicy/decisions.htm, last accessed 15 September 2010. Bank of England Act (1998): http://www.bankofengland.co.uk/about/legislation/1998act.pdf, last accessed 15 September 2010. Besley, T., N. Meads, and P. Surico (2008): "Insiders versus Outsiders in Monetary Policymaking," American Economic Review, 98(2), 218-23. Bhattacharjee, A., and S. Holly (2005): "Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England's MPC," Discussion paper, Department of Applied Economics, University of Cambridge. Blinder, A. S. (2007a): "Monetary policy by committee: Why and how?," European Journal of Political Economy, 23, 106123. Blinder, A. S. (2007b): "On the Design of Monetary Policy Committees," Working Paper 153, Center for Economic Policy Studies. Bloomberg Businessweek (2010a): "King's Men Fiddle With U.K. Forecasts: David G. Blanchflower," http://www.businessweek.com/news/2010-07-12/king-s-men-fiddle-with-u-k-forecasts-david-g-blanchflower.html, last accessed 26 September 2010. (2010b): "Wadhwani Suggests `Unrepentant' BOE May Not De- serve New Powers," http://www.businessweek.com/news/2010-07-13/wadhwani-suggests-unrepentant-boe-may-not-deserve-new-powers.html, last accessed 26 September 2010. Brainard, W. (1967): "Uncertainty and the Effectiveness of Policy," American Economic Review, 57(2), 411-425. Buiter, W. (2000): "Letter to the Right Honourable Gordon Brown MP, Chancellor for the Exchequer," http://www.hm-treasury.gov.uk/press_16_00.htm#letter. Feddersen, T., and W. Pesendorfer (1998): "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts under Strategic Voting," American Political Science Review, 92(1). Gerlach-Kristen, P. (2003): "Insiders and Outsiders at the Bank of England," Central Banking, XIV(1), 96-102. (2004): "Is the MPC's voting record informative about future UK monetary policy?," Scandinavian Journal of Economics, 106(3), 299-313. (2006): "Monetary policy committees and interest rate setting," European Economic Review, 50(2), 487-507. Gerling, K., H. P. Gruner, A. Kiel, and E. Schulte (2005): "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, 21(3), 563-597. Hansen, S., and M. F. McMahon (2008): "Delayed Doves: MPC Voting Behaviour of Externals," Discussion Paper 862, Centre for Economic Performance, London School of Economics. Harris, M., and C. Spencer (2008): "Decade of dissent: explaining the dissent voting behavior of Bank of England MPC members," MPRA Paper 9100, University Library of Munich, Germany. Higgs, D. (2003): "Review of the role and effectiveness of non-executive directors," Discussion paper, UK Department of Trade and Industry. Lambert, R. (2006): "Who sets our interest rates?," http://www.bankofengland.co.uk/publications/other/monetary/inside_mpc.pdf. Levy, G. (2004): "Anti-herding and strategic consultation," European Economic Review, 48(3), 503-525. (2007): "Decision Making in Committees: Transparency, Reputation, and Voting Rules," American Economic Review, 97(1), 150-168. Pollard, P. (2004): "Monetary Policy-Making around the World," Presentation, Federal Reserve Bank of St. Louis. Prendergast, C. (1999): "The Provision of Incentives in Firms," Journal of Economic Literature, 37(1), 7-63. Prendergast, C., and L. Stole (1996): "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, 104(6), 1105-34. Riboni, A., and F. J. Ruge-Murcia (2010): "Monetary Policy by Committee: Consensus, Chairman Dominance, or Simple Majority?," The Quarterly Journal of Economics, 125(1), 363-416. Spencer, C. (2006): "The Dissent Voting Behaviour of Bank of England MPC Members," Department of Economics Discussion Papers 0306, Department of Economics, University of Surrey. Trueman, B. (1994): "Analyst Forecasts and Herding Behavior," Review of Financial Studies, 7(1), 97-124. Visser, B., and O. H. Swank (2007): "On Committees of Experts," The Quarterly Journal of Economics, 122(1), 337-372.
URI:	http://wrap.warwick.ac.uk/id/eprint/3501

Request changes to a record

Actions (login required)

View Item