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Abstract for:

First Impressions Matter: Signalling as a Source of Policy Dynamics

Stephen  Hansen,  Michael  McMahon,  September 2011
Paper No' CEPDP1074: | Full paper (pdf)
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Keywords: Signalling; learning, monetary policy

JEL Classification: D78; E52

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: CEP Discussion Papers
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Abstract:

We first establish that policymakers on the Bank of England's Monetary Policy Committee choose lower interest rates with experience. We then reject increasing confidence in private information or learning about the structure of the macroeconomy as explanations for this shift. Instead, a model in which voters signal their hawkishness to observers better fits the data. The motivation for signalling is consistent with wanting to control inflation expectations, but not career concerns or pleasing colleagues. There is also no evidence of capture by industry. The paper suggests that policy-motivated reputation building may be important for explaining dynamics in experts’ policy choices.