Variety of economic judgement and monetary policy-making by committee

Abstract

With the increasing attention to how monetary policy is communicated has come a focus on the scope for diverse messages to arise from the committee making the decision. While the existing literature sees the source of such diversity in relation to a ‘correct’ decision based on one ‘true’ model, we explore the implications of diversity as being instead the norm within a pluralist approach to knowledge. By considering judgement as the core of decision-making and uncertainty as conditioning judgement, we develop a theory of decision-making by committee under uncertainty. Our case study is the Monetary Policy Committee of the Bank of England. We conclude with a hypothesis about the tendency to policy inaction in different circumstances, notably where there are confident but conflicting judgements within the committee, on the one hand, and where there is agreement that a high level of uncertainty clouds judgement, on the other. This contrasts with the conventional association of diversity of MPC opinion with uncertainty (both as cause and effect).