Predicting Bank of England's asset purchase decisions with MPC voting records

Abstract

We use the MPC voting records to predict changes in the volume of asset purchases. We find, first, that minority voting favouring an increase in the volume of asset purchases raises the probability of an actual increase at the next meeting. Second, minority voting supporting a higher Bank Rate decreases the likelihood of further asset purchases.

Keywords:

• asset purchases
• Bank of England
• monetary policy
• Monetary Policy Committee
• predictability
• voting records

JEL Classification:

• D71
• E43
• E52
• E58

Notes

¹ The BOE emphasizes that its objective – to meet the inflation target of 2% – remained unchanged. Source: http://www.bankofengland.co.uk/monetarypolicy/Pages/qe/default.aspx

² There was no vote to reduce the volume of asset purchases during the sample period. Figure. 1 indicates that the ‘skewness’ measure is negative on two occasions. However, in both cases, all MPC members voted for an increase in the volume of asset purchases. The minority was in favour of a less for an increase.

³ Note that this transformation is conducted for illustrative purposes only in Fig. 1; it is not employed in the econometric analysis later in this article.

⁴ These measures are the spreads between (i) 3-month money market rates, (ii) 1-year money market rates and (iii) 5-year government bonds and the overnight money market rates.

⁵ As a robustness test, we also estimated a probit model where all increases in AP volume (£25bn, £50bn and £75bn) were treated equally (results not shown) and the corresponding average marginal effects. If the ‘skewness’ indicator for asset purchases rises by £10bn, the likelihood for a raise in AP at the next meeting increases by 14 pp. The corresponding marginal effect for a 1-bp increase in the Bank Rate indicator is –15.3 pp.