We provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model. First, all policymaker types should become less tough on inflation over time and secondly, types that weigh output more should have a more pronounced shift. Voting data from the Bank of England's Monetary Policy Committee strongly support both predictions. Counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle, and improves the committee designer's welfare. Implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes. ? The Author 2016.

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1 October 2016

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The Review of Economic Studies 83(4) , pp.1645-1672, 2016

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DOI: 10.1093/restud/rdw007

https://www.journals.uchicago.edu/doi/10.1093/reep/rex013#

This Journal article is published under the centre's Growth programme.