First Impressions Matter: Signalling as a Source of Policy Dynamics

Michael McMahon and Stephen Hansen

No 9607, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide the first direct empirical support for the relevance of signalling in monetary policy. In our dynamic model, central bankers make policy under uncertain inflationary conditions and place different weights on output fluctuations. Signalling leads all bankers to be tougher on inflation initially, but to become less tough with experience. This evolution is more pronounced for members who weight output more ("doves"), which provides an additional test of our model. We structurally estimate the model using Bank of England data and confirm both predictions. Signalling increases the probability new members vote for high interest rates by up to 35%.

Keywords: Signalling; Monetary policy; Committees (search for similar items in EconPapers)
JEL-codes: D78 E52 E58 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-cdm and nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: First Impressions Matter: Signalling as a Source of Policy Dynamics (2016)
Working Paper: First Impressions Matter: Signalling as a Source of Policy Dynamics (2015)
Working Paper: First Impressions Matter: Signalling as a Source of Policy Dynamics (2012)
Working Paper: First Impressions Matter: Signalling as a Source of Policy Dynamics (2012)
Working Paper: First Impressions Matter: Signalling as a Source of Policy Dynamics (2011)
Working Paper: First impressions matter: signalling as a source of policy dynamics (2011)
Working Paper: First impressions matter: Signalling as a source of policy dynamics (2011)
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