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  • 11 - An Analysis of Central Bank Decision-Making

  • from IV - MPC Process
  • Edited by Sean Holly, University of Cambridge, Michael McMahon, University of Oxford, Stephen Millard, National Institute of Economic and Social Research, Anna Watson, University of Cambridge
  • Book:
    Reflections on Monetary Policy after 25 Years of the MPC
    Published online:
    14 November 2024
    Print publication:
    21 November 2024, pp 131-144

  • 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