From Doves to Hawks: A Spatial Analysis of Voting in the Monetary Policy Committee of the Bank of England, 1997-2007

Abstract

This paper examines the making of UK monetary policy between 1997 and 2007 using an analysis of voting behaviour in the Bank of England's Monetary Policy Committee (MPC).We use a Bayesian method to estimate the interest rate policy preferences of the MPC members on a 'dove-hawk' scale. Then, by comparing the 'ideal points' of outgoing members with their successors, we find evidence that MPC composition complements the fiscal policies pursued by the government. The revealed preferences of the MPC members suggest three distinct groups; 'the doves', who favour lower interest rates than the median committee member; 'the centrists', whose revealed preferences are in line with the median committee member; and 'the hawks', who favour higher interest rates than the median committee member. Our analysis suggests that the 'opposition' to the centrist group changes from the doves to the hawks as the spending policies of the government ceased to be constrained by the 1997 electoral promise to maintain conservative spending plans.3

Rational Partisan Theory, Uncertainty, and Spatial Voting: Evidence for the Bank of England's MPC

“…These observations have very important implications for policy relating to institutional setting and political economy of monetary policy decision‐making. This is particularly relevant against the context of the recent observation (Hix et al, 2007) of a link between appointments to the MPC and political cycles. In particular, our observation that pacifist external members are doves rather than hawks emphasizes the usefulness of appointing MPC members in a way that can counteract “conservative” monetary policy and replicate the social optimum; see also Waller (1992, 2007).…”

“…Further, some doves may masquerade as hawks to reduce inflationary expectations that they can exploit later. Hix et al (2007) find that the degree of hawkishness of some members is hard to pin down; and Hansen and McMahon (2008) provide evidence that the voting behavior of members of the Bank of England's MPC indeed changes over the duration of their tenure, along the lines argued in Sibert (2003). Based on the above theory and evidence, we assume that degree of hawkishness, h j , is an unobserved random effect that potentially takes different values, in line with opportunistic doves in Sibert (2003).…”

“…This connection is conveniently and popularly (e.g. see Gerlach‐Kristen, 2004; Hix et al, 2007) expressed in terms of the dove–hawk dimension. Specifically, externally appointed members of the MPC tend to be more dove‐ish, in the sense that their decision rules (or votes) appear to offer greater weight to output stabilization.…”

“…Recent literature has used such detailed information, including votes by individual members, to study several aspects of monetary policy‐making at the Bank of England's Monetary Policy Committee (MPC) (e.g. see Bhattacharjee and Holly, 2008; Chadha and Nolan, 2001; Cobham, 2002a, b, 2003; Gerlach‐Kristen, 2004; Hix et al, 2007).…”

“…While evidence on both these theories has in general been mixed (e.g. see Alesina and Summers, 1993; Berlemann and Markwardt, 2007; Carlsen and Pedersen, 1999; Chappell and McGregor, 2004; McGregor, 1996), there is some evidence that monetary policy‐making in the Bank of England may be explained partly by political business cycles (Hix et al, 2007).…”