First Impressions Matter: Signalling as a Source of Policy Dynamics

40 Pages Posted: 19 Apr 2012

See all articles by Stephen Hansen

Stephen Hansen

affiliation not provided to SSRN

Michael F. McMahon

University of Warwick - Faculty of Social Studies; London School of Economics & Political Science (LSE)

Date Written: April 19, 2012

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.

Keywords: signalling, learning, monetary policy

JEL Classification: D780, E520

Suggested Citation

Hansen, Stephen and McMahon, Michael F., First Impressions Matter: Signalling as a Source of Policy Dynamics (April 19, 2012). CESifo Working Paper Series No. 3782, Available at SSRN: https://ssrn.com/abstract=2042353 or http://dx.doi.org/10.2139/ssrn.2042353

Stephen Hansen (Contact Author)

affiliation not provided to SSRN ( email )

Michael F. McMahon

University of Warwick - Faculty of Social Studies ( email )

United Kingdom

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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