First Impressions Matter: Signalling as a Source of Policy Dynamics

• Autores: Stephen C. Hansen, Michael Mcmahon
• Localización: Review of economic studies, ISSN 0034-6527, Vol. 83, Nº 4, 2016, págs. 1645-1672
• Idioma: inglés
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• Resumen

  • We provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model. First, all policymaker types should become less tough on inflation over time and secondly, types that weigh output more should have a more pronounced shift. Voting data from the Bank of England's Monetary Policy Committee strongly support both predictions. Counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle, and improves the committee designer's welfare. Implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes.