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Julian D. A. Wiseman
Abstract: The BoE’s MPC should announce, with the monetary policy decision, the votes of the committee members.
Publication history: only at www.jdawiseman.com/papers/finmkts/20110218_votes_with_decision.html. Usual disclaimer and copyright terms apply.
From The Financial Times, 18th February 2011, Speculation grows of UK interest rate rise:
Sterling advanced on Friday amid speculation that one more member of the Bank of England’s nine-strong monetary policy committee may have voted to raise interest rates at this month’s meeting.
There were rumours in the foreign exchange market that Andrew Sentance, who along with Martin Weale voted to raise interest rates at January’s meeting, had told guests at a dinner hosted by JB Drax at London’s Lanesborough hotel that the minutes would be more interesting than usual.
Forex dealers speculated that Spencer Dale, the Bank’s chief economist, may have joined Mr Sentance and Mr Weale in voting for a rate rise.
Whether or not somebody else voted for a rate hike, whether or not Andrew Sentance said or hinted that somebody did, there is just no need to risk this sloppiness. Keeping the votes secret needlessly encourages this type of market “speculation”.
The Americans have this right. Turn to the last two paragraphs of the 14th December 2010 statement of the Federal Reserve:
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.
The markets were told, immediately, who voted for what. The FOMC even allowed the dissenter a long sentence of explanation.
But the BoE keeps the votes secret until the minutes are released, nearly two weeks later. This secrecy has two disadvantages.
Every secret is a potential leak. There are thirteen people in that room, nine of whom—the committee members—give speeches and talks about macroeconomics and the BoE’s response function. And even if leaks don’t happen, as the BoE would doubtless wish said, market participants can still believe that they have happened. That belief, even if unfounded, is mischief enough.
When the minutes are released, people turn directly to the paragraph of the votes. For many market participants, the minutes are summarised by “2-6-1” (¶35 of minutes of meeting ending 13th January 2011). This isn’t entirely unreasonable, as most of the new information is indeed caught by the votes; the economics has less market-moving information, and such as there is, is more difficult to extract. But if the votes had been released with the decision, the new information would be the economic arguments. More people might read the fullness of the MPC’s reasoning.
Summary: the BoE should announce the votes with the decision. At the next meeting—no advantage in procrastination—the MPC should announce that after each subsequent meeting the announcement will include the votes, except after meetings at which the MPC agrees to delay.
|— Julian D. A. Wiseman|
18th February 2011
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