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MPC Voting, Forecasting and Inflation

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  • Wojciech Charemza
  • Daniel Ladley

Abstract

This paper considers the effectiveness of monetary policy committee voting when the inflation forecast signals, upon which decisions are based, may be subject to manipulation. Using a discrete time intertemporal model, we examine the distortions resulting from such manipulation under a three-way voting system, similar to that used by the Bank of Sweden. We find that voting itself creates persistence in inflation. Whilst altering the forecast signal, even if well intentioned, results in a diminished probability of achieving the inflation target. However, if committee members ‘learn’ in a Bayesian manner, this problem is mitigated.

Suggested Citation

  • Wojciech Charemza & Daniel Ladley, 2012. "MPC Voting, Forecasting and Inflation," Discussion Papers in Economics 12/23, Division of Economics, School of Business, University of Leicester, revised Jan 2013.
    • Handle: RePEc:lec:leecon:12/23
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    References listed on IDEAS

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    More about this item

    Keywords

    Voting Rules; Monetary Policy; Inflation Targeting;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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