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11 - An Analysis of Central Bank Decision-Making

from IV - MPC Process

Published online by Cambridge University Press:  14 November 2024

By
Maria Demertzis ,
Catarina Martins  and
Nicola Viegi
Edited by
Sean Holly ,
Michael McMahon ,
Stephen Millard  and
Anna Watson
Sean Holly
Affiliation:
University of Cambridge
Michael McMahon
Affiliation:
University of Oxford
Stephen Millard
Affiliation:
National Institute of Economic and Social Research
Anna Watson
Affiliation:
University of Cambridge
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Summary

This chapter compares the decision-making process of the Bank of England to that of the European Central Bank and the Federal Reserve. The move towards making monetary policy decisions via committees coincided with the shift to central bank independence. This was a natural consequence of central banks no longer taking orders from their governments but being given the operational independence. Members of committees then needed to pool the information that would help them make good decisions in uncertain circumstances – a necessary step when performing complex tasks like monetary policy. The move towards central bank independence was crucial to ensure politically independent and goal-oriented conduct of monetary policy. The more long-term orientation and objectivity of monetary policy’s goals – contrasting with the shorter-term nature of political cycles and political bias to inflate the economy – proved beneficial to price stability, with more credible signals helping to manage inflation expectations

Keywords

Monetary policy committeescentral bank independencebusiness cyclespolitical cyclescredible signals
Type
Chapter
Information
Reflections on Monetary Policy after 25 Years of the MPC , pp. 131 - 144
Publisher: Cambridge University Press
Print publication year: 2024

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