policy makers votes and predictability of monetary policy - november 28

8/8/2019 Policy Makers Votes and Predictability of Monetary Policy - November 28

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Policymakers votes

and

predictability of monetary policy

Andrei Sirchenko

European University Institute, Florence

University of California, San Diego

[email protected]

First draft: July 1, 2010

This version: November 28, 2010

Abstract

This paper provides empirical evidence in favor of prompter and more detailed re-lease of Monetary Policy Councils voting records, not published by National Bank ofPoland before subsequent MPC meeting. The study shows that voting records, if theywere available, could improve predictability of upcoming policy decisions. They revealstrong and robust predictive content as a supplementary factor after controlling forMPC policy bias and responces to ination, real activity, exchange rates and nancialmarket information.

The voting patterns contain information not embedded in the market expectationsof future policy, as revealed by the spreads and moves in the market interest rates, andeven explicit forecasts of the next policy decision, made by market analysts in Reuterssurveys before each policymaking meeting. Moreover, the direction of dissent explainsthe direction of private sector forecast bias.

These ndings are based on real-time data and voting patterns only, without knowl-edge of policymakers names attached to each vote.

Keywords: policy interest rate; Monetary Policy Committee; predictability; voting;real-time data

JEL classication: D70; E52; E58

This study was nancially supported by the Paderewski grant from the European Center Natolin. I wouldalso like to thank Beata Bierut, Marcin Grela, Witold Grostal, Jarosaw Janecki, Byoung-Ki Kim, JacekKotowski, Magorzata Krzak, Helmut Luetkepohl, Pernilla Meyersson, Joanna Nied zwiedzinska, MateuszPipien, Zbigniew Polanski, Barbara Sladkowska and participants of the seminar at National Bank of Polandand conference on "Monetary Policy and Financial Stability: What Role for Central Bank Communication?"at De Nederlandsche Bank for useful comments and information, and Reuters (Warsaw) for providing surveydata. The paper has also beneted from the earlier study funded by the Economics Education and ResearchConsortium.

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1 Introduction

"By making itself more predictable to the markets, the central bank makes market

reactions to monetary policy more predictable to itself. And that makes it possible to

do a better job of managing the economy." Alan Blinder (1998, p. 72)

"While specifying a complete policy rule is infeasible, however, there is much that acentral bank can do both by its actions and its words to improve the ability of

nancial markets to predict monetary policy actions." Ben Bernanke (2004)

Most academic economists and central banks practitioners seem to agree nowadays thatmore transparent and predictable behavior not only promotes the credibility and democraticaccountability of an independent central bank but also creates a stable environment to man-age private sector expectations and reduces uncertainty in nancial markets, enhancing thetransmission and eectiveness of monetary policy itself and leading to social benets. Overthe past two decades most central banks have radically increased the public communicationand disclosure of internal information and methodology used in monetary policymaking.

The vast majority of central banks currently conduct monetary policy by a committee,

in some countries called the Monetary Policy Committee or Council (MPC). Typically, theMPC sets the policy interest rate by either consensus or formal voting. However, thereis no consensus among both the scholars and central bankers on whether and when thevoting records of policymaking meetings should be disclosed.1 For instance, the US FederalReserve System (Fed) and Swedens Central Bank (Riksbank) release the voting recordsimmediately together with an announcement on the policy action, the Bank of England(BOE) publishes them within two weeks after the policy meeting, the National Bank ofPoland (NBP) discloses them after a six-week delay, while the European Central Bank(ECB) does not publish them at all.

The policy decision-making by the Governing Council of the ECB remains clouded. Onthe one hand, according to Article 10.2 of the Statute of the European System of Central

Banks and of the European Central Bank, the Governing Council shall act by a simplemajority of the members having a voting right. In the event of a tie, the President shallhave the casting vote. On the other hand, the ECB claims that all policy decisions aremade by consensus and formal votes are not taken at all: As you know, we do not voteand have never voted in the past (Trichet, 2008).

The ECB argues against publishing the voting records and minutes because they arelikely to emphasize the disagreements among nations (rather than the interests of eurocurrency area as a whole), increase external pressure on the Governing Council members,discouraging them from expressing personal views, forcing to follow their national interests,imposing on them, on the other hand, an extra task to demonstrate that their decisionsare actually not driven by national considerations, replacing the free-owing discussions

by more formal statements, and introducing the short-term personal career concerns intotheir deliberations and voting behavior. These arguments are not universally accepted evenfor a special case of the ECB multi-national structure, and do not seem to apply fully tothe other central banks. Moreover, the above issues do not arise, even in a particular case

1 See, e.g., Blinder (2007), Geraats (2006), Gersbach and Hahn (2008), Lambert (2004), Maier (2007),and Waisman (2003). For a survey, see Geraats (2002) and Hahn (2002). For a heated debate on the ECBpractice not to release the minutes and voting records, see Buiter (1999), De Haan and Eijnger (2000) andIssing (1999a, 1999b).

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of the ECB, if only the non-attributed voting patterns (without the policymakers namesattached to each vote) are disclosed. Still, as argued by the advocates, the publication ofthe attributed voting records and minutes has the additional advantages: it might actuallyweaken the incentives to express regional biases, reduce free-riding, strengthen the motivesto conduct the high quality policy discussions, and promote the committees credibility and

individual accountability, allowing the dissenting members to publicly defence their choicesand their competence to be eectively monitored and evaluated.Besides, some studies also conclude that the desirability of disclosing the votes depends

on the institutional background and (re)appointment procedure for the MPC. For instance,according to Blinder (2007 and 2009), the release of voting records is desirable as soon aspossible for an individualistic committee, where each member votes for his own preferredpolicy and decisions are taken by majority, but might harm the "aura of collegiality", "un-dermine clarity and common understanding and create a cacophony instead" in a collegialcommittee, since its decisions are reached by consensus, with or without a formal vote.2

Anyway, many observers conclude that the disclosure of votes (both attributed and non-attributed) provides an important information about the diversity and balance of viewsamong the policymakers, allows the public to more accurately observe the current policy

stance and access the riskiness of economic conditions, enhances the understanding of cen-tral bank behavior and, hence, facilitates the policy predictability. Some observers, however,emphasize that clarity is pre-requisite for transparency and express concern that conictingindividual views on policy actions might confuse the market participants. This hypothesislacks empirical support. Besides, "if a cacophony problem arises from the fact that an MPChas too many uncoordinated and inconsistent voices that confuse rather than enlighten thepublic, the appropriate remedy is greater clarity, not silence" (Blinder, 2009).

Whatever the results of theory, they have to be scrutinized for empirical soundness.The data on the central bankers votes are growing and currently available in, at least, ninecountries: Brazil, Czech Republic, Hungary, Japan, Korea, Poland, Sweden, the UK and theUSA. The impact of the voting records on market anticipation of policy decisions now can

be tested empirically. However, the studies of monetary policy predictability usually do nottake into account the informational value containing in the available records, but insteadroutinely focus on the nal collective decisions, made by majority vote. The studies that douse the individual voting records are primarily concerned with detecting the heterogeneityof policy preferences among the policymakers.3

However, as shown by Gerlach-Kristen (2004), the voting records of the BOE are in-formative about the future policy: the dissenting views help in forecasting the next policydecision if controlling for the lagged policy rate change and either the interest rate futures orthe slope of the term structure of money market rates, or both. Besides, she nds that themarket expectations of future policy reacts to the publication of voting records. Gerlach-Kristen (2009) adds an evidence that the attributed voting records can further enhance the

policy predictability: in the BOE case the dissenting votes ofexternal MPC members alonepredict the future policy changes whereas the internal members dissents contain less clearsignal. Gerlach-Kristen and Meade (2010) also report that the dissents in the US Federal

2 See Blinder and Wyplosz (2004) and Blinder (2009) who proposed a classication of MPCs into genuinely-collegial (e.g., the ECB and the Fed under B. Bernanke), autocratically-collegial (e.g., the Fed under A.Greenspan and Norges Bank) and individualistic ones (e.g., the BOE and Swedish Riksbank).

3 E.g., see Besley et al. (2008), Hix (2010) and Riboni and Ruge-Murcia (2008) on the UK case; Chappelet al. (2005) and Havrilesky and Gildea (1991) on the USA case.

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Open Market Committee (FOMC) help forecast the future changes in the US Federal fundsrate in the context of a regression with two lags of the rate change.

Timely release of information that provides precise policy signals is benecial. A fewcentral banks disclosing the voting records dier in their timing: either immediately follow-ing the rate-setting meeting (in Czech Republic, Japan, Korea, Sweden, and the USA), or

within three weeks (in Brazil, Hungary, and the UK), or with a six-week delay (in Poland).Therefore, in Poland, unlike in other countries, the voting records are not available to thepublic before the subsequent policymaking meeting. According to "The Act on the Na-tional Bank of Poland", the positions taken by Council members during votes should beannounced in the Monitor Polski, ocial gazette of the Republic of Poland, after a periodof six weeks but no later than three months from the date the resolution is adopted. Themore detailed voting records, including all submitted propositions (even not voted for) arepublished later in the NBPs Ination Report. Such delay in the disclosure of votes di-minishes their relevance. Even very detailed MPC minutes, if released only after the nextmeeting, are known to receive little media coverage and minor market reaction. The em-pirical studies, using high-frequency data from nancial markets, report that the expeditedrelease of the minutes by the BOE and the Fed signicantly increased the market reaction

to them (e.g., see Reeves and Sawicki (2007) and Reinhart and Sack (2006), respectively).This paper provides empirical evidence on whether the (non-attributed) voting records of

the last MPC meeting could improve the predictability and private sector anticipation of thenext policy rate decisions in Poland. The case of Poland, where the voting records becomeavailable only after the subsequent MPC meeting, provides an interesting opportunity toinvestigate whether the disclosure of votes could create news for private sector even aslate as one day before a policy meeting, when the information set on a state of economyavailable for the public is as close as possible to the one used by the policymakers. If thevoting records add new information, they, hence, can improve the publics understandingof central banks systematic policy responses and decision-making process.

The paper not only brings an evidence from another country to a rare empirical litera-

ture, limited to the UK and the USA. It makes a contribution in the following directions.First, do the voting records help forecasting the next policy decision in addition to relevantmacroeconomic and nancial factors? Second, could dissenting votes, if they were avail-able, add information to the market expectations of upcoming policy decisions? Third, dothe voting records enhance the policy predictability beyond the private sector anticipation?Fourth, can the direction of dissent and dispersion of votes explain the direction of bias anduncertainty of private sector forecasts?

The rest of the paper is structured as follows. The next section provides institutionalbackground, discusses the MPC voting records and introduces a measure of disagreementamong the MPC members, used to predict the policy rate. Section 3 describes the data, dis-creteness of policy rate and econometric approach used for estimations and testing. Section

4 presents the econometric evidence. Section 5 concludes and gives the policy suggestions.

2 Votes and disagreement among policymakers

The available central bankers voting records reveal that the fraction of unanimous decisionsranges from 0.38 to 0.76, with a median of 0.56, suggesting that the policymaking by

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consensus might suppress the dissent or, at least, not reveal it.4 As pointed out by Blinder(2007), "the formal vote may be a poor indicator of the actual amount of disagreementon a collegial MPC, one that prizes - or, in the limit, forces - consensus. According tolongstanding FOMC tradition, for example, a member is expected to vote in favor of thechairmans policy proposal unless he or she disagrees with it fundamentally - which is a

much sterner test than merely preferring an alternative". So, "the number of dissentingvotes clearly underestimates the amount of disagreement".The informational content of disagreement among the policymakers is also indirectly as-

sessed by growing empirical evidence that the central bankers press conferences, statementsand minutes move nancial markets and help in predicting the policy interest rates (e.g.,see Blinder et al. (2008), Blinder (2009), de Haan (2008), Hayo and Neuenkirch (2010), andJansen and de Haan (2009). Needless to explain how much attention is paid to the centralbanks communication by nancial media and market participants trying to extract anysignals about future policy, learn about the dynamics of opinions and guess what majorityis to prevail at the next policy meeting. However, the interpretation of central bank "talk"suers from subjectivity, since the quantication of sometimes incoherent and ambiguousrhetoric signals is dicult. Besides, the correspondence between what central bankers say

and how they actually vote on policy decisions is not always perfect.On the contrary, the amount of disagreement among policymakers derived from the

voting records is an objective quantitative measure, a direct and explicit policy signal:"Casting a minority vote appears to be a bigger step, and therefore carries more information,than merely expressing a personal dissenting view in public" (Blinder, 2009).

The delay in releasing the voting records in Poland may not be shortened at the discre-tion of the MPC itself, because it has been embodied in "The Act on the National Bank ofPoland" since its original version of August 29th, 1997. At that time, the BOE, which hasbeen used as an example by many other central banks, had just recently started publishingthe voting records (since June 1997). The NBP followed closely the UK practice at thattime: the voting records were not published until after the following MPC meeting (exactly

with a six-week delay) and they did not indicate numerically which interest rates the dis-senting members preferred. Though, the voting records of the BOE indicated whether thedissenting members favored higher or lower interest rate than the majority. This practicewas changed by the BOE already in October 1998: since then the voting records are releasedin the UK with only two-week lag and reveal the interest rates proposed by all dissentingmembers. Later, in January 2002 the Fed also decided to include the preferred policy choiceof all dissenters, and since March 2002 began releasing the voting records together with theannouncement of policy action (previously they were disclosed only after the subsequentmeeting). In Poland, however, there were no changes in this regard since 1998.

The MPC of the NBP, established in February 1998, consists of the Chairman (thePresident of the NBP), appointed by the President of Poland, and nine other members,

appointed in equal proportions by the President of Poland, the Sejm (lower house) andthe Senate (upper house) of the Parliament. Members of the Council are appointed for anon-renewable term of six years, but the Chair may serve for two consecutive terms. Therst term of oce of the MPC lasted from February 1998 through January 2004. In fact,one MPC member was replaced already before the policy meeting in January 2004, and

4 The unanimity rates for the NBP and BOE are calculated by the author, using the voting records upto December 2009 taken from the central banks websites. The rates for the central banks of Brazil, CzechRepublic, Hungary, Japan, Sweden and USA are taken from Geraats et al. (2008).

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another one was substituted even earlier in 2003 due to the death. The second term lastedfrom February 2004 through January 2010. Since the rst MPC Chair had resigned threeyears earlier in December 2000, the Chair since then has been appointed with a three-yearlag with respect to the other members.

This paper analyzes separately two sub-samples with 71 observations in each: from

1998/03 to 2004/01 and from 2004/02 to 2009/12, almost fully matching the rst andsecond terms of the MPC.The interest rate decisions are made monthly during MPC meetings at the second half

(usually in the end) of each month by majority vote: "The Council shall rule in the form ofresolutions adopted by a majority vote, when at least ve members are present, includingthe Chairperson of the Council. In the event of a tied vote, the Chairperson of the Councilshall have a casting vote" (NBP 2010, Article 16.3). Each MPC member can express hisor her preferred policy rate adjustment and make a motion to be voted on. If no proposalis made there is no voting at all and the rate remains unchanged, otherwise the Chairmanselects a proposition (as a rule, the largest proposed move) and the members vote on it. Ifthe rst voted proposal commands a majority, then the others are not voted; otherwise, themembers vote on the alternative one. Historically, the second voted proposal has always

been passed.The available voting records, unfortunately, do not provide the complete information

on the individual policy rate preferences. They contain the description of all proposalssubmitted during a meeting and the list of members who voted yes and no at each votinground. The preferred interest rate of a member who voted against the winning proposal isnot generally recorded. Moreover, the NBP does not disclose such information on request,despite its declared pursuit of transparency: "The Council will use its best eorts to ensuretransparency of the monetary policy" (NBP, 2007). Therefore, it is not always possibleto infer with certainty the favoured interest rate of those members who disagreed withmajority. In case of such uncertainty I assumed that the dissenting members favoured thestatus quo, i.e. no change to the rate, if no alternative proposition was submitted. In

case when more than one proposal was put to vote on a meeting and a member supporteddierent motions I used a proposition that the member supported rst. For instance, if amember voted yes for a defeated motion to cut the rate by 0.50% and then also voted yesfor a motion to cut the rate by 0.25%, I recorded the members preferred change to the rateat this meeting as 0.50% cut, treating his support for 0.25% cut as a compromise decision.

Of course, the incomplete voting records require some subjectivity in recovering thepolicy preferences of dissenting members, but, as the Dutch say, better half an egg thanan empty shell. Nevertheless, the above assumptions seem to be quite realistic. The mostsignicant measurement error could potentially arise if a dissenting member, who votedagainst a winning proposal, say, to cut the rate by 0.50%, was actually in favor of a 0.25%cut or perhaps even a 0.25% hike (rather than the status quo as I assume in such a case),

but did not submit his proposal, may be because during the discussion he had realizedthat his proposal would not receive the majority support. Such a situation does not seemto happen often, given an individualistic nature of Polish MPC. There were actually 19meetings when the MPC voted for a proposal to change the rate but it was defeated, and23 meetings when two proposals were put to vote because the rst voted one did not pass.In fact, the voting records do sometimes contain the proposals that were submitted but notput to vote, because another proposal had already received the majority of votes.

In sum, the voting records of the Polish MPC do not report the full information on the

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Figure 1. Announced and average proposed changes to the NBP reference rate.

expressed individual policy preferences as the records of the BOE or the Riksbank, amongothers. However, they provide far more accurate information on the balance of opinionsamong policymakers than the voting records of the collegial committees, such as the FOMCof the Fed. In terms of Blinders (2007) taxonomy, the Polish MPC is clearly an exampleof an individualistic committee, founded on the principle of individual accountability and

composed by the heterogeneous and often dissenting members who do not insist on achievingconsensus. In fact, the policy rate was set unanimously only on 80 out of 143 meetings,mostly (68 times) when the rate was not changed. The MPC Chair was actually voteddown 13 times and had a casting vote 12 times (because of a tied vote). It seems, thedisagreement on the MPC can be quite well captured by the recorded individual policychoices.

I measure the disagreement among the MPC members by a variable skewt calculated,following Gerlach-Kristen (2004), as the dierence between the average of adjustmentsproposed by all MPC members and ocially announced adjustment to the policy interestrate at the last MPC meeting. Figure 1 plots such dierences for all MPC meetings: skewranges from -80 to 75 basis points, taking a positive (negative) value if the average proposedchange is above (below) the announced one. Table 1 reports the average and maximumabsolute values ofskew separately for the 1998/02 - 2004/01 and 2004/02 - 2009/12 periodsas well as separately for the decisions to cut, leave unchanged or hike the interest rate. Theamount of disagreement in absolute terms was on average higher for the rst Council thanfor the second one (9.7 versus 3.8 basis points), but the policy rate was itself more volatileduring the rst MPC term. Interestingly, the decisions to cut the rate caused on averagemuch stronger disagreement than the decisions to hike in both Councils (17.7 versus 5.2,and 7.1 versus 4.3 basis points for the rst and second Councils, respectively). The decisions

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to leave the rate unchanged were accompanied on average by lower degree of disagreement(4.6 and 2.8 basis points for the rst and second Councils, respectively) than decisions tochange the rate in both Councils.

1998/02 - 2004/01 2004/02 - 2009/12

Cut 17.7 (75.0) 7.1 (12.5)

No change 4.5 (80.0) 2.9 (12.5)

Hike 5.2 (15.0) 4.3 (10.0)

All 9.5 (80.0) 3.9 (12.5)

Policy rate decisionAverage (maximum) absolute value ofskew t , basis points

Table 1. Disagreement on policy rate decisions among MPC members.

3 Data and econometric model

The NBP, one of the pioneers of direct ination targeting (DIT) in the Central and Eastern

Europe, has followed the DIT strategy with short-term interest rates as a principal policytool since 1998. The reference rate of the NBP, introduced in February 1998, determinesthe yield obtainable on the main open market operations and sets the path of monetarypolicy. The reference rate is the rate on 28-day (from 1998 to 2003), 14-day (from 2003 to2005), and 7-day (since 2005 to present) NBP money market bills.

-2.50 -1.50 -1.00 -0.75 -0.50 -0.25 0.00 0.25 0.50 1.00 1.50 2.50 All

1998/03-2004/01 2 6 6 6 7 40 2 1 1 71

2004/02-2009/12 2 3 8 47 9 2 71

Small cut No change All

1998/03-2004/01 7 40 71

2004/02-2009/12 8 47 715 11

SampleHistorical changes to reference rate, percentage points

Consolidated categories of reference rate changes

Large cut Hike

20 4

Table 2. Frequency distribution of changes to the NBP reference rate.

The dependent variable in this study is Rt+1, a change to the reference rate madeby the MPC at the next decision-making meeting. As Table 2 shows the NBP has alwaysaltered its policy rate in discrete adjustments the multiples of 25 basis points (a quarter ofone percent): all 142 historical changes for the period 1998/03 - 2009/12 took only twelvevalues, between -250 and 250 basis points. The policy rate adjustments are distributed

heterogeneously: 120 out of 142 observations fall into 4 out of 12 observed discrete values. Imerge all observed changes into four categories: large cut" (50 basis points or more), smallcut" (25 basis points), no change and hike. Table 2 reports the frequency distribution ofconsolidated changes to the rate. This quadruple classication is denitely able to representthe essence of the NBP operating policy and closely reects the most recent historical policymoves. Indeed, since February 2002 only four (out of 95) observations are combined withan adjacent category: there were two 0.50% hikes (merged with the 0.25% hikes) and two0.75% cuts (merged with the 0.50% cuts).

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To address the discreteness of dependent variable the paper employs an ordered probitapproach5, which forms a probabilistic forecast of next discrete change to the policy rateRt+1 as a nonlinear function of explanatory variables Xt:

Pr(Rt+1jXt) =

8

>>>:

Pr(Rt+1 = "large cut"jXt) = (1 Xt)Pr(Rt+1 = "small cut"jXt) = (2 Xt)(1 Xt)Pr(Rt+1 = "no change"jXt) = (3 Xt)(2 Xt)Pr(Rt+1 = "hike"jXt) = 1 (3 Xt)

,

where 1 < 1 < 2 < 3 < 1 are unknown thresholds to be estimated, is Gaussiancumulative distribution function and Xt may incorporate any relevant data available at datet before the next policymaking meeting at date t + 1.

The estimates of and are obtained by making the usual identifying assumptions thatthe variance of latent disturbance term 2 = 1 and the intercept 0 = 0 and maximizingthe logarithm of likelihood function L with respect to the vector of parameters = (; ):

ln L() =T

Pt=1

4

Pi=1

Iti ln[Pr(Rt+1 = DijXt)],

where T is the sample size, D1 = "large cut", D2 ="small cut", D3 = "no change", D4 ="hike", and Iti is an indicator function such that Iti = 1 i Rt+1 = Di and 0 otherwise.

The latest versions of time series commonly used in the empirical literature may dierfrom the real-time ones because of revisions. To avoid the distortion of information thestudy uses the novel Polish real-time data set, compiled and described in Sirchenko (2008)and updated up to the end of 2009. This data set contains the historical vintages of timeseries truly available to the public one day before each decision-making MPC meeting. Itcontains the measures of current ination (headline and core consumer price indexes (CPI)and prices of sold goods from Business Tendency Survey (BTS) of the Central StatisticalOce), inationary expectations (expected CPI from Ipsos-Demoskop survey of consumers,Reuters survey of market analysts and NBP projections, and expected prices of goodsfrom BTS), gross domestic product and main components, industrial production and othermeasures of real activity from BTS, real sector expectations (taken from BTS, Reuterssurvey and NBP projections), labor market and wages, employment expectations fromBTS, market interest rates (52-week treasury bill rate and various Warsaw interbank oerrates (WIBOR) and spreads between the longer and shorter-term rates), market interestrates expectations from Reuters survey, exchange rates, exchange rates expectations fromReuters survey, foreign policy interest rates, credit and lending.

The full list, descriptions and modications of right-hand-side variables used in reportedestimations are presented in Appendix 1. It is a small sub-set of dataset used in the speci-cation search. All employed time series are checked for stationarity using the augmented

Dickey-Fuller (ADF) unit root tests. The lag order of lagged rst dierences of dependentvariable in the tests is chosen according to a criterion of no serial correlation among residu-als up to the twelfth order, checked using the Ljung-Box Q-statistic. The ADF tests of allemployed series fail to detect non-stationarity at 1% signicance level.6

5 I also tried the ordered logit model - the results are similar.6 The results of the ADF tests are available upon request.

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4 Do voting records matter? The econometric evidence

"Most economic decisions depend, directly or indirectly, on the predictability of mone-

tary policy." William Poole (2005b, p. 659)

"[R]evealing the monetary policy committees vote may carry a strong hint about where

interest rates might head in the future. A 5-4 vote [...] conveys rather dierent infor-mation than a 9-0 vote." Alan Blinder (2004, p. 24)

How can the disagreement among MPC members improve prediction of the next policydecision? Suppose, that in one case the policy rate was not changed unanimously at the lastmeeting while in the other case it was not changed either, but not unanimously: minorityfavored a higher policy rate. Naturally, in the latter case one can expect an additionalpressure to increase the rate at the next meeting. The direction of dissenting votes indicatesthe policy inclination, while the rate and degree of dissent suggest the likelihood of policyadjustment. A rationale behind this, pointed out by Gerlach-Kristen (2004), might be dueto the discreteness of interest rates and uncertainty. The discreteness of announced policyrate is a man-made phenomenon; there is no reason to believe that the optimal underlying

interest rate is also a discrete-valued variable. One can assume a latent continuous policyrate that, however, is not observed by the MPC members with certainty. Suppose, theoptimal rate change is 15 basis points, observed by the policymakers with the errors in therange of10 basis points. One should then expect the majority of the MPC members tovote for a 25 basis-point hike and the minority for a no-change decision. If the voting recordsare released it becomes evident that the optimal interest rate is below the announced one,hence, the probability of future rate cut increases.

Of course, as noted by Geraats (2006), the voting records may correctly indicate theexisting policy inclination only if the distribution of the preferred policy rates among MPCmembers is suciently wide and symmetric. Suppose that in the above case the optimal15-basis-point rate change is observed by policymakers with errors in the range of 2 or,

alternatively, 2:::+20 basis points. Then all the members in both cases would vote for a25 basis-point increase and the voting patterns would not reveal the negative policy tilt.

In this section I present the econometric evidence on whether the (non-attributed) votingrecords of the last MPC meeting could enhance the predictability and improve the privatesector anticipation of the next policy rate decision. The policy predictability, accordingto the widely established practice in the academic literature, is analyzed in the context ofmonetary policy reaction functions or rules, estimated without and with the variable skewt.All the data used in the empirical estimations, except the voting records, were available tothe public in the real time at latest one day before each policymaking meeting. I use boththe market-based and survey-based measures of private sector anticipations.

More specically, I study the following four questions.

4.1 Do voting records help predicting policy rate in addition to other

relevant factors?

The relation between the measure of disagreement at the last MPC meeting skewt andhistorical (unconsolidated) change to the rate at the subsequent meeting is itself ratherweak: Pearson correlation coecients are 0.129 and -0.028 for the rst (1998/3 - 2004/1)and the second (2004/2 - 2009/12) sub-periods, respectively. In the OLS regression ofhistorical change to the rate at the subsequent meeting on skewt the latter is not signicant

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at 5% level, using Whites heteroskedasticity-consistent standard errors, in both sub-periods:the p-values of the coecient ofskewt are 0.096 and 0.823, and adjusted R

2s are 0.002 and-0.014 for the rst and second sub-periods, respectively. Indeed, skewt demonstrates nopredictive power for Rt+1 as a single explanatory variable in the estimated ordered probitregressions, especially in the second sub-period: while the p-values of the coecient of skewt

are 0.005 and 0.684 (see models (1) and (4) in Appendix 2), the p-values of the LR-test of theredundancy of skewt are 0.088 and 0.680 for the rst and second sub-periods, respectively.Denitely, the disagreement on the last meeting is not a factor that solely drives the nextpolicy decision. The further results show that skewt has, however, a strong and robustpredictive power as a supplementary factor when controlling for other determinants relevantfor the interest rate setting.

In this sub-section I estimate the following alternative models of policy interest rate,separately for both MPC terms, without and with the variable skewt: (i) nave "no change"prediction; (ii) pure autoregressive model with a lagged policy rate change;7 (iii) forward-looking Taylor-type rule with interest rate smoothing; (iv) backward-looking Taylor-typerule with interest rate smoothing; (v) Taylor-type rule augmented with exchange rates,nancial market interest rates and spreads, and the indicator of policy bias; and (vi) favored

empirical policy rules. Selected estimation outputs are reported in Appendixes 2 and 3.The models in (ii) - (v) are the standard or extended specications of monetary policy

reaction function, widely used in both theoretical and empirical studies. The choice of right-hand-side variables in the reported Taylor-type rules is motivated by the best t amongalternative indicators and availability of data for both sub-periods.8 In fact, the impact ofskewt is strikingly robust to both the various specications and various alternative measuresof economic indicators. The same specications of Taylor-type rules, estimated separatelyfor both terms of the MPC, reveal structural break in policy responces: in the rst sub-period, contrary to the second one, the MPC do not systematically react to the real activity,but do react to the exchange rate. Therefore, the augmented Taylor-type rules, reported inAppendix 3, are estimated using dierent specications and include ination, exchange rate

and nancial market information in the rst sub-period, but ination, real activity, nancialmarket information and indicator of policy bias in the second sub-period. The responcesto (un)employment and industrial production are either not statistically signicant or havethe unexpected sign in both sub-periods.

The favored empirical models in (vi) are data driven and selected by an extensive searchamong numerous possible specications and hundreds explanatory variables, including -nancial market indicators, money supply and lending, labor market and wages in addition tovarious measures of current and expected ination, real sector activity, and exchange rates.The NBP looks at everything and monitors hundreds of data series: While making decisionsit is necessary to take into account all available information, rather than just the inationprojection (NBP, 2007). The variables employed in the specication search are frequently

7 The second lag of the rate change is not statistically signicant at 10% level (at least) in this and allestimated specications in the second sub-period. In the rst sub-period, it is signicant at 5% level in pureautoregressive model only, but becomes insignicant at 5% level (at least) in all further estimations per-formed. The lagged level of the policy rate is always not signicant at 10% level (at least) in all specicationsin both sub-periods.

8 For example, the core CPI, 15% trimmed mean, is the only core index that was not redened in August2007; GDP forecasts from Reuters surveys are available only since November 2000; CPI forecasts by NBPare available since August 2004; 9- and 12-month WIBOR are available since January 2001; the policy biasis available since February 2000.

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mentioned in the MPC press-releases and Ination Reports. The reported favored empiricalpolicy rules in Appendix 3 are actually the extended versions of the Taylor-type rule andinclude current and expected CPI, exchange rate and market interest rates and spreads inthe rst sub-period, and expected CPI, expected GDP, market interest rates and spreads,deposits of non-nancial sector and indicator of policy bias in the second sub-period.

Significance

McFadden McKelvey-Zavoina Hit rate (p-value) of skew t

Nave "no change" prediction (1) 0.02 (0.00) 0.06 (0.00) 0.58 (0.56) 0.005

Autoregressive model (7) 0.11 (0.04) 0.28 (0.10) 0.61 (0.44) 0.000

Forward-looking Taylor rule (8) 0.20 (0.13) 0.45 (0.31) 0.61 (0.54) 0.000

Backward-looking Taylor rule (2) 0.21 (0.13) 0.46 (0.31) 0.61 (0.48) 0.000

Augmented Taylor rule (14) 0.45 (0.39) 0.78 (0.75) 0.77 (0.72) 0.000

Favored empirical policy rule (19) 0.52 (0.45) 0.85 (0.83) 0.76 (0.69) 0.000

Nave "no change" prediction (4) 0.00 (0.00) 0.00 (0.00) 0.66 (0.66) 0.684

Autoregressive model (10) 0.21 (0.15) 0.42 (0.32) 0.69 (0.68) 0.003Forward-looking Taylor rule (12) 0.41 (0.34) 0.69 (0.61) 0.69 (0.73) 0.002

Backward-looking Taylor rule (6) 0.44 (0.37) 0.71 (0.64) 0.79 (0.72) 0.001

Augmented Taylor rule (16) 0.66 (0.61) 0.91 (0.88) 0.80 (0.77) 0.004

Favored empirical policy rule (21) 0.88 (0.76) 1.00 (0.97) 0.94 (0.89) 0.000

Notes: 71 observations in each sample. The ordered probit estimations with Huber(1967)/ White(1980) robust standard

errors. The estimation details are given in Appendixes 2 and 3.

Forecasting model

Pseudo-R2

measures of fit with (without) skew t

Sample: 1998/03 - 2004/01

Sample: 2004/02 - 2009/12

Table 3. Do voting records improve policy predictability?

The estimations of models (i) through (vi) are summarized in Table 3: the importantmessage is that inclusion of skewt improves all models ability to explain the next policy

decisions in both sub-periods, with the onlyexception for the nave "no change" model inthe second sub-period. Indeed, skewt is a statistically signicant variable at either 5% or,mostly, at 1% level, and all likelihood-based measures of t (McFaddens and McKelvey-Zavoinas pseudo-R2s) are higher by up to 18 percentage points.9 The "hit rate" (thefraction of correctly predicted discrete outcomes or count R2) is higher by up to 17 per-centage points, except one case when it is lower by 4 basis points. 10 However, the MLestimation is not optimized with respect to this measure of t. A signicant increase inthe likelihood function, i.e. tightening of estimated distribution around actual distributionof choices, does not necessarily result in more accurate prediction of a particular choice,including a realized one.

The positive value of the coecient of skewt suggests that a positive (negative) value

of skewt increases (reduces) the probability of the rate hike and reduces (increases) theprobability of the large rate cut. The impact on the probabilities of small cut and no

9 McFaddens pseudo-R2 = R=U, where R = 2 (lnL lnL0) is the likelihood ratio, U = 2 lnLo isthe upper bound ofR, L is the likelihood of the full model, and Lo is the likelihood of the model without

regressors. McKelvey-Zavoinas pseudo-R2 = 0V ar(X)

0V ar(X)+1.

10 The predicted discrete policy decision is computed as a discrete change (out of four choices) closest tothe expected change calculated using probabilities from the ordered probit model.

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change is not univocal and depends on the values of all independent variables including thevalue of skewt.

Interestingly, not only skewt reveals the strong predictive power in the context of boththe backward- and forward-looking Taylor-type rules, even augmented by exchange rate andnancial market expectations of future policy interest rate as reected in the movements

and spreads between various market interest rates, but also the impact of skewt

is robustto the inclusion of policy bias. The policy bias statement was used by the MPC in itsmonthly press-releases since February 2000 through December 2005 to explicitly signal thelikely stance of future monetary policy: it could be mild, neutral or restrictive. Theinterpretation was straightforward: the mild bias meant that the future interest rate cutswere more likely than hikes while the restrictive bias indicated tighter monetary policy.In January 2006 the policy bias was replaced by a balance of risks assessment with re-spect to the inationary pressure and economic growth in the foreseeable future, with lessstraightforward, but in most cases still univocal interpretation. Based on the reading ofMPC press-releases I construct the indicator variable biast coded as -1 if it is mild, 0 ifneutral and 1 if restrictive, and expect the positive coecient on it. The variable biast,included into regression for the second sub-sample, has a positive sign and adds predictive

information: it is statistically signicant at 1% level when skewt is not included and remainssignicant at 1% level after the inclusion of skewt, which is signicant at 1% level too (seemodels (15) and (16) from Appendix 3, respectively).

Figure 2. Correlograms of generalized residuals from favored empirical policy rules.

Finally, the strong and robust predictive power of skewt is again strongly conrmedwhen it is included into the favored empirical models (see Appendix 3). The estimatedmodels (18) and (21) demonstrate the high measures of t: McKelvey-Zavoinas R2s are0.93 and 0.97, and the hit rates are 0.72 and 0.89 for the 1999/02 - 2004/1 and 2004/2 -

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2009/12 periods, respectively.11 However, the inclusion of skewt, which is signicant at 1%level, increases all likelihood-based pseudo-R2 measures by up to 12 percentage points andhit rate by up to 10 percentage points. All favored models are checked for the equality ofcoecients across response categories (aka parallel regression assumption). All of them passthe test with p-value 0.22, at least, if skewt is included. It makes superuous to employ the

generalized ordered or multinomial probit/logit models, which are too richly parameterizedfor our small sample size.To make the further regression diagnostics Figure 2 shows the correlograms of generalized

residuals (see Chesher and Irish (1987) and Gourieroux et al. (1987) for details) from models(17), (18), (20) and (21): the null of no serial correlation among residuals up to the twelfthorder is overwhelmingly accepted - all p-values are greater than 0.05 for all models. It makesunessential to use far more computationally demanding dynamic ordered probit approachthat accounts for the serial correlation among residuals, but cannot be directly estimatedby maximizing the likelihood function.

4.2 Could voting records add information to private sector anticipation?

In this sub-section I directly test whether the voting records, if they were released beforethe subsequent policy meeting, could add information to the private sector anticipationof the next policy decision. I use both the market-based (as measured by the movementsin the market interest rates and spreads between the longer- and shorter-term rates a daybefore each policymaking meeting) and survey-based measures of private sector anticipation(as measured using original disaggregated quantitative data taken from Reuters surveys ofcommercial bank analysts, made one or two days before each policymaking meeting).

Table 4 reports the estimations of the specication Rt+1 = b1X1+ b2X2+ b3skewt + et,where X1 is the spread either between longer- and shorter-term WIBOR or between thelong-term WIBOR and the policy rate, and X2 is the change in either 1- or 3-month WIBORsince the date next after the date of the last MPC meeting. The variable skewt is signicant

at 1% level and 5% or 10% level in all estimated specications in the 1999/2 - 2004/1and 2004/2 - 2009/12 periods, respectively. Inclusion of skewt raises the likelihood-basedpseudo-R2 measures of t by up to 9 percentage points.

The changes and spreads among market interest rates react mostly to the expectationsof future ination, which, of course, depends on the future policy rate, so the above nancialinstruments can be used only as implicit market expectations of the next policy action. NowI focus on the explicit private sector forecasts of the next policy decision taken from Reuterssurveys.

Reuters has conducted its poll in Poland monthly since 1994. Up to 30 bank analystsparticipate in the survey. The respondents predict the major economic and nancial indi-cators. These forecasts are widely cited in Poland including the NBP Ination Reports andMPC press releases. Since April 1998 the market analysts have also predicted the policy in-terest rate with steadily growing forecasting performance. From April 1998 through January1999, during the period of transition to a new monetary policy framework of the DIT, the

11 The estimated reaction functions become more regular if the rst twelve MPC meetings, from February1998 through January 1999, are omitted. The year of 1998 was a period of gradual transition to a newframework of DIT, an interimyear, additionally aected by the Russian crisis in August - see Polanski(2004) and Sirchenko (2008) for more information. See also model (19) in Appendix 3, estimated for the1998/3 - 2004/1 period with a dummy variable I[1999/1] - one before 1999/2 and zero otherwise - that issignicant at 10% level.

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market analysts predicted correctly only three out of ten, i.e., 30% of policy actions (again,in the context of four possible policy choices). From February 1999 through January 2004,when the monetary policy became more and more transparent and regular, and the interestrate itself less volatile, the private sector learned a lot about the central banks responses toeconomic environment and managed to correctly predict 80% of policy decisions. Finally,

from February 2004 through December 2009 Reuters polls hit rate reached 87%.

X1 =WIBOR[.] [12M t] -R t [12Mt]-[1Mt] [12Mt]-[3Mt] [6M t] -R t [6Mt]-[1Mt]

X2 =m WIBOR[.] [1M t] [1M t] [3M t] [1M t] [1M t]

b 1 1.52 (0.32)*** 1.57 (0.45)*** 2.50 (0.69)*** 1.52 (0.36)*** 1.25 (0.30)***

b 2 0.84 (0.39)** 0.87 (0.40)** 1.58 (0.48)*** 0.16 (0.34) 0.78 (0.35)**

b 3 2.15 (0.68)*** 2.07 (0.69)*** 2.72 (0.74)*** 2.77 (1.00)*** 2.66 (0.76)***

McFadden 0.23 (0.18) 0.24 (0.19) 0.31 (0.25) 0.37 (0.32) 0.28 (0.22)McKelvey-Zavoina 0.51 (0.42) 0.53 (0.45) 0.63 (0.54) 0.77 (0.70) 0.59 (0.50)

Hit rate 0.68 (0.65) 0.70 (0.60) 0.67 (0.63) 0.73 (0.68) 0.65 (0.55)

b 1 0.88 (0.42)** 1.00 (0.46)** 2.36 (0.92)** 0.87 (0.52)* 0.99 (0.57)*

b 2 6.69 (1.94)*** 7.28 (1.83)*** 6.30 (1.27)*** 6.94 (1.95)*** 7.56 (1.79)***

b 3 4.81 (2.48)* 5.57 (2.41)** 5.72 (2.72)** 4.32 (2.61)* 4.99 (2.49)**

McFadden 0.39 (0.37) 0.38 (0.36) 0.41 (0.39) 0.37 (0.35) 0.36 (0.34)

McKelvey-Zavoina 0.65 (0.63) 0.65 (0.62) 0.70 (0.67) 0.63 (0.62) 0.62 (0.60)

Hit rate 0.69 (0.76) 0.70 (0.76) 0.72 (0.73) 0.70 (0.75) 0.73 (0.77)

Sample: 1999/02 - 2004/01

R t+1 = b 1 X1 + b 2 X2 + b 3 skew t + e t

Goodness-of-fit pseudo-R2

measures with (without) skew t

Sample: 2004/02 - 2009/12



Notes: 60 and 71 observations, respectively. The ordered probit estimations with Huber(1967)/White(1980) robust standarderrors in parantheses. ***/**/* denote significance at 1/5/10 % level, respectively. The cutpoints are estimated, but not

reported here. The data on WIBOR12Mt are available since 2002/1 only, the observations before 2002/1 are set to zero.

Table 4. Do voting records add information to market-based expectations?

To proceed I consider two alternative measures of the next policy move forecast de-rived from the Reuters surveys: ERt+1Reu

at - the average of individual forecasts and

ERt+1Reut - the forecasted discrete change (among the multiples of 25 basis points) clos-est to the average of individual forecasts from Reuters surveys. Table 5 reports the orderedprobit estimations of the specication Rt+1 = b1X + b2skewt + et, where X is one of thealternative forecasts, separately for the 1998/4 - 2004/1 and 2004/2 - 2009/12 sub-samples.

In the second sub-period variable skewt is signicant at 1% level in both specications (seethe third and fourth columns). In the rst sub-period I employ a slightly modied ver-sion of skewt, calculated as above but disregarding the votes of one MPC member, MarekDabrowski. The reason is that this the most dissenting member is a clear outlier: he votedagainst the adopted resolution on 26 out of 33 meetings, when the voting took place, beingthe only dissenting member on 8 meetings. As explained in Section 2, his preferred pol-icy preferences on the above 26 meetings are not reported in the available voting records.Omitting this outlying member may reduce the noise in the measure of disagreement among

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The estimated policy rules including the impact of dissenting votes (not available tothe market analysts at the dates of forecasting) do enhance the short-term predictability ofmonetary policy beyond the private sector anticipation.

Forecast 1999/2-2004/1 2004/2-2009/12 1999/2-2004/1 2004/2-2009/12

Explicit forecast from Reuters survey 48 (0.80) 62 (0.87) 0.77 0.82

Empirical policy rule without skew t 44 (0.73) 63 (0.89) 0.70 0.85

Empirical policy rule with skew t 50 (0.83) 67 (0.94) 0.77 0.92

Notes: The estimated policy rules are given by models (17) and (21) from Appendix 3, respectively for 1999/2-2004/1 and 2004/2-

2009/12 periods. The predicted discrete policy decision from Reuters surveys is computed as a discrete change (out of four

choices: hike, no change, 0.25% cut, and 0.50% or larger cut) closest to the mean change of individual forecasts. The model-

based predicted discrete policy decision is computed analogously as a discrete change (out of the above four choices) closest to

the expected change calculated using probabilities from ordered probit model.

Hit rate Average likelihood

Table 6. Comparison with private sector anticipation.

4.4 Can direction of dissent and dispersion of votes explain direction of

bias and uncertainty of private sector forecasts?

The use of original disaggregated data from Reuters surveys allows to examine the asso-ciation between the voting dispersion and private sector uncertainty. In this sub-section Ianalyze only the period of the second term of the MPC.

First, I test whether the absolute forecast error, the fraction of wrong predictions andthe dispersion of individual forecasts from Reuters surveys of bank analysts is positivelyrelated to a variable dispersiont, dened as the dispersion of individual votes at the lastMPC meeting. The dispersion is calculated as the average absolute deviation of data points

from their mean. The (absolute) forecast error is computed as the (absolute) dierencebetween the average of individual forecasts ERt+1Reu

at and the announced change to

the policy rate Rt+1. The fraction of wrong predictions is calculated as a ratio of wrongindividual forecasts to the total number of forecasts. All three abovementioned variables ofinterest are limited - they can take only the positive values; besides, the fraction of wrongpredictions is additionally limited from above by one. Therefore, I use the censored normal(Tobit) regressions.

Table 7 reports the results. They suggest that the dispersion of individual forecasts,the absolute forecast error and the fraction of wrong predictions are signicantly (at 1%level) and positively related to the dispersion of votes at the last meeting: a one-basis-point increase in dispersiont is associated on average with a 0.47-basis-point increase in

the dispersion of individual forecasts, a 0.96-basis-point increase in the absolute error offorecast and a 0.032 increase in the fraction of wrong predictions. The explanatory powerof dispersiont is robust to the inclusion of dispersiont+1, the dispersion of votes at the up-coming meeting: dispersiont remains signicant at 10% or 5% level in all three regressions,while dispersiont+1 is signicant at 5% or 1% level. In this context a one-basis-point in-crease in dispersiont(dispersiont+1) is associated on average with a 0.30(0.41)-basis-pointincrease in the dispersion of individual forecasts, a 0.64(0.78)-basis-point increase in theabsolute forecast error and a 0.018(0.028) increase in the fraction of wrong predictions.

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Dependent variable: Forecasts' dispersion Absolute forecast error Fraction of wrong predictions

dispersion t 0.47 (0.14)*** 0.96 (0.31)*** 3.23 (1.04)***

Adjusted R2 0.08 0.07 0.08

dispersion t 0.30 (0.17) * 0.64 (0.31) ** 1.98 (1.10) *

dispersion t+1 0.41 (0.18) ** 0.78 (0.33) ** 2.93 (1.07) ***

Adjusted R2 0.10 0.09 0.12

Notes: Sample: 2004/2-2009/12, 71 observations. The Tobit estimations with Huber(1967)/White(1980) robust standard errors

in parantheses. ***/**/* denote significance at 1/5/10 % level, respectively. The constant term and variance of error

distribution are estimated, but not reported.

Table 7. Can dispersion of votes explain uncertainty of private sector forecasts?

These ndings, however, cannot explain whether the dissent inside the MPC movesthe private forecast errors in a particular direction and how the expedited disclosure ofvotes would inuence the biasedness and uncertainty of private forecasts. If dispersionof votes is seen to represent a degree of uncertainty about economic prospects then one

might expect the MPC voting records, revealing higher dispersion of votes, to induce morevolatility in nancial markets. On the other hand, if dispersion of votes is taken to indicateheterogeneity of policy preferences then disclosure of voting records might enhance thepublics understanding of collective policymaking process and, hence, reduce the uncertaintyof private sector anticipation. Reeves and Sawicki (2007) nd that the expedited release ofthe BOEs MPC minutes, containing the voting records, made the market reaction to themstatistically signicant. However, the higher degree of dissent is not signicantly associatedwith any more volatility above that usually associated with publication.

Dependent variable: Unconsolidated forecast error

skew t -0.41 (0.20)** -0.44 (0.21)** -0.32 (0.19)*

skew t+1 0.32 (0.18)* 0.60 (0.33)*

Durbin-Watson stat 1.65 1.71 1.71

Adjusted R2 0.05 0.08 0.08

4-category forecast error

Notes: Sample 2004/2 - 2009/12, 71 observations. The OLS estimations with Newey/West robust standard errors in

parantheses. **/* denote significance at 5/10 % level, respectively. The constant term is estimated, but not reported here.

Table 8. Can direction of dissent explain direction of private sector forecast errors?

I turn now to the more interesting part of the question - whether there is a relationbetween the direction of forecast bias and the direction of dissent. The rst and second

columns of Table 8 show the regressions of 4-category forecast error, computed as the de-viation of discrete change to the policy rate (out of four choices) closest to the average ofindividual forecasts from the announced policy rate change Rt+1, on skewt (the disagree-ment at the last MPC meeting) only and on both skewt and skewt+1 (the disagreementat the upcoming meeting), respectively. The coecient of skewt is signicant at 5% leveland remains signicant after the inclusion of skewt+1, which is signicant at 10% level.Both skewt and skewt+1 have the expected sign, negative and positive, respectively. If thedissenting members at the upcoming meeting prefer the higher rate than the majority, i.e.,

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if skewt+1 is positive, then the forecasters on average also tend to overpredict the rate,therefore, the forecast error is also positive. However, if the dissenting members at the lastmeeting prefer the higher rate than the majority, i.e., if skewt is positive, then the MPCis likely to set the higher interest rate at the upcoming meeting than the market analysts,who are not aware of the voting records, would normally expect. Therefore, they tend to

underpredict, and the forecast error is negative.As a robustness check, the third column in Table 8 reports the regression of non-consolidated forecast error, computed as the deviation of discrete change to the policyrate (among the multiples of 25 basis points) closest to the average of individual forecastsfrom Rt+1, on both skewt and skewt+1: a one-basis-point positive dissent at the upcom-ing meeting skewt+1 is related to a 0.60-basis-point overforecast, while a one-basis-pointpositive dissent at the last meeting skewt is related to a 0.32-basis-point underforecast.

These ndings suggest that timely disclosure of voting records before the subsequentMPC meeting could reduce the biasedness and uncertainty of private sector anticipation ofthe next policy rate decision.

5 Conclusions"The positions taken by Council members during votes shall be announced [...] after

a period of six weeks, but not later than three months." The Act on the National

Bank of Poland (NBP, 2010)

"MPC concluded that there was no compelling reason why publication of the minutes

should not be brought forward to a date prior to the next monthly monetary meeting."

Eddie George (1998), then-Governor of the BOE

This paper provides empirical evidence in favor of prompter and more detailed releaseof MPC voting records, published in Poland with a six-week delay and not available to the

public before the subsequent policymaking meeting. It is shown that if the voting recordswere available they could improve the predictability of upcoming policy decisions. Morespecically, if the dissenters preferred the higher policy rate, the MPC is more likely to hikethe rate than cut it. This despite the fact that the disagreement at the last meeting is nota factor that solely predicts the next policy decision: the correlation between upcomingpolicy rate changes and the disagreement among the policymakers at the last MPC meetingis quite low.

However, the dissenters votes become a highly informative supplementary statisticswhen controlling for relevant economic and nancial factors. The empirical policy rules,augmented by the measure of disagreement among the MPC members, correctly predictabout 90% of discrete adjustments to the interest rate, and even surpass the private sectorforecasts made before each policy meeting. The results suggest that the publication of voting

records reduces the informational asymmetry and allows to rene the publics understandingof systematic policy responses and decision-making process.

The dissenting votes contain predictive power not embedded in various Taylor type rules,market anticipations of future policy as revealed by market interest rates and spreads, andthe MPC statements on policy bias and balance of risks. The informational value added byvoting records is shown to be robust not only to alternative indicators employed, but alsoto dierent specications of estimated reaction functions.

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Moreover, the dissenting votes add information even to the explicit forecasts of the nextpolicy decision made by market analysts in Reuters polls just before each policymakingmeeting. The direction of dissent and dispersion of votes explain the direction of bias anduncertainty of private sector forecasts. The econometric evidence suggests that the observeddissenting votes inside the MPC could signicantly reduce the biasedness and uncertainty

of private sector anticipation of monetary policy.All of the above ndings are based on the voting patterns only, without the knowledgeof MPC members names attached to each vote. Therefore, they might be of interest tothe central banks that currently do not publish the voting records due to the reluctance todisclose the individual members votes (e.g., the European Central Bank).

Over the last twelve years the National Bank of Poland has radically increased thedisclosure of internal information on its policymaking process. One thing, however, remainsunchanged since 1998: the six-week lag in the release of MPC voting records. There seemsto be no clear argument in favor of this delay. Even the minutes of the last decision-makingmeeting are published since April 2007 with only a three-week lag. In the context of centralbank transparency that considered by the MPC to be among its main policy guidelines thending that voting patterns help in predicting the policy rate implies that their expedited

release is benecial. All the other central banks, disclosing their voting records, do it eitherimmediately following the rate-setting meeting (in Czech Republic, Japan, Korea, Sweden,and the USA) or within three weeks (in Brazil, Hungary, and the UK). Only in Poland thevoting records are released after the subsequent MPC meeting and do not reveal the policyactions proposed by all dissenting members.

The paper provides clear policy messages. First, the NBP can further improve thepredictability and public understanding of its monetary policy by publishing the MPCvoting records as soon as possible, preferably, in its press releases immediately after thepolicy meeting. Second, the voting records should include the proposed policy choices of alldissenting members.

Since the delay in releasing the voting records may not be shortened at the discretion of

the MPC itself, because it has been embodied in "The Act on the National Bank of Poland",it is probably time to change the law. In the meantime, the MPC might report the balanceof votes in its press releases, without the MPC members names attached. In fact, in theminutes of meetings held in September and October 2010, when the policy rate was leftunchanged, the MPC already broke the ice and rst time mentioned that an alternativemotion to raise the rate was put forward but did not pass.

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Appendix 1. Description of data

Mnemonics Variable description (source of data)

Inflation

BTSRepr Expected prices of goods in retail trade from Business Tendency Survey (GUS)

CPI Consumer price index, annual rate in percent (GUS)

CPItri CPI, 15% trimmed mean, annual rate in percent (GUS and NBP)

CPIxac CPI, excluding administratively controlled prices, annual rate in percent (GUS and NBP)

E_Inf_IpsExpected CPI over next 12 months from survey of consumers, annual rate in percent (Ipsos-Demoskop and

NBP)

E_CPI_NBP Central projection of CPI over next eight quarters, annual rate in percent (NBP)

E_CPI_Reu CPI forecast over next 11 months from survey of bank analysts, annual rate in percent (Reuters)

Real sector activity

BTSIcli General business tendency climate in industry from Business Tendency Survey (GUS)

BTSIesold Expected volume of sold production in industry from Business Tendency Survey (GUS)

E_GDP_ReuGross domestic product (GDP) forecast over next 2 quarters from survey of bank analysts, annual growth

rate in percent (Reuters)

GDP Index of GDP, annual growth rate in percent (GUS)Exchange rates

USD Exchange rate PLN/USD (NBP)

E_USD_Reu Forecast of exchange rate PLN/USD over next 12 months from survey of bank analysts (Reuters)

Market interest rates

WIBORNM N-month (N = 1, 3, 6 or 12) Warsaw Interbank Offer Rate, annualized percent (Datastream)

Deposits

Deposit Deposits and other liabilities to non-financial sector (NBP)

Other

skew Difference between the average proposed and announced change to the reference rate (NBP & AC)

dispersionAverage absolute deviation of changes to the reference rate proposed by MPC members from their mean

(NBP & AC)

ER t+1Reu

The next discrete change to the reference rate (among the multiples of 25 basis points) closest to the

average of individual forecasts from the survey of bank analysts, annualized percent (Reuters)

ER t+1Reu4 The next discrete change to the reference rate (out of four choices) closest to the average of individual

forecasts from the survey of bank analysts, annualized percent (Reuters)

ER t+1Reua The average of individual forecasts of next change to the reference rate from the survey of bank analysts,

annualized percent (Reuters)

biasIndicator of "policy bias" or "balance of risks" (since 2006/1) statements: -1 if "mild", 0 if "neutral", and 1 if

"restrictive" (NBP & AC)

R NBP reference rate , announced at the last MPC meeting, annualized percent (NBP)

Tar Official NBP target for consumer price index, annual rate in percent (NBP)

I[Variable>Tar] Indicator variable: one ifVariable is equal to or above the inflation target, zero otherwise

I[1999/1] Indicator variable: one before 1999/2, zero otherwise

Transformation description

Change since the previous month a Change since the corresponding period of previous year

c Change since the date of the last non-zero adjustment to the reference rate

m Change since the date next after the date of last MPC meeting

q Change since the previous quarter

Notes: All data are not adjusted seasonally. GUS is the Central Statistical Office of Poland. AC stands for author's calculations. Data for

E_CPI_NBP is available only since August 2004: from February to July 2004 data on E_Inf_Ips were us ed.

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Appendix 2. Do voting records matter if included into standard backward- andforward-looking Taylor rules?

Sample

Model (1) (2) (3) (4) (5) (6)

2.23*** 1.87** 4.13*** 3.16**

(0.78) (0.80) (1.34) (1.36)

0.85** 1.24***

(0.34) (0.43)

1.57*** 3.47***

(0.57) (0.78)

0.09 0.23

(0.12) (0.14)

-0.00 0.05***

(0.01) (0.02)

1.18*** 3.01*** 2.99*** 1.01 7.68** 10.81***

(0.42) (0.69) (0.82) (2.48) (3.18) (3.27)

McFadden 0.02 (0.00) 0.21 (0.13) 0.19 (0.11) 0.00 (0.00) 0.31 (0.27) 0.44 (0.37)

McKelvey-Zavoina 0.06 (0.00) 0.46 (0.31) 0.44 (0.27) 0.00 (0.00) 0.54 (0.50) 0.71 (0.64)

Hit rate 0.58 (0.56) 0.61 (0.48) 0.58 (0.49) 0.66 (0.66) 0.72 (0.69) 0.79 (0.72)

Model (7) (8) (9) (10) (11) (12)

2.51*** 1.36* 2.35*** 5.13*** 2.65* 4.43***

(0.68) (0.82) (0.69) (1.17) (1.42) (1.27)

0.23 2.15***

(0.21) (0.46)

0.05*** 0.06***

(0.01) (0.02)

-0.02 -0.00 0.05***

(0.01) (0.01) (0.01)

1.97***

(0.54)

2.76*** 2.90*** 2.95*** 8.92*** 9.72*** 10.49***

(0.59) (0.79) (0.60) (3.02) (3.50) (3.44)

McFadden 0.11 (0.04) 0.20 (0.13) 0.12 (0.04) 0.21 (0.15) 0.39 (0.33) 0.41 (0.34)

McKelvey-Zavoina 0.28 (0.10) 0.45 (0.31) 0.30 (0.11) 0.42 (0.32) 0.69 (0.63) 0.69 (0.61)

Hit rate 0.61 (0.44) 0.61 (0.54) 0.62 (0.45) 0.69 (0.68) 0.68 (0.68) 0.69 (0.73)

CPItri t

q GDP t

Notes: 71 observations in each sub-sample. The ordered probit estimations with Huber(1967)/White(1980) robust standard in

parentheses . ***/**/* denote significance at 1/5/10 % level, respect ively. The cutpoints are estimated, but not reported here. Data

on Ex_GDP_Reu t is not available for 1998/3 - 2004/1 period.

Backward-looking Taylor rules

Forward-looking Taylor rules

aBTSIcli t

skew t

Goodness-of-fit pseudo-R

2


1998/3 - 2004/1 2004/2 - 2009/12

R t

[CPIt - Tart]



R t

[E_Inf_Ips t - Tart]

aBTSReprt

aBTSIesoldt

E_GDP_Reu t

skew t

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Appendix 3. Do voting records matter if included into augmented Taylor rules andfavored empirical policy rules?

Sample

Model (13) (14) (15) (16)

1.47*** 1.67*** 3.64***

(0.39) (0.42) (1.00)

0.09** 2.64***

(0.04) (0.62)

0.23*** 0.03**

(0.06) (0.01)

0.87*** 0.87*** 2.74***

(0.23) (0.24) (0.67)

7.18*** 10.21***

(2.18) (2.01)

1.14*** 1.30***

(0.34) (0.30)

2.57*** 2.65*** 11.02*** 10.63***(0.67) (0.68) (3.82) (3.72)

McFadden 0.41 (0.35) 0.45 (0.39) 0.59 (0.53) 0.66 (0.61)

McKelvey-Zavoina 0.73 (0.69) 0.78 (0.75) 0.88 (0.82) 0.91 (0.88)

Hit rate 0.72 (0.69) 0.77 (0.72) 0.83 (0.77) 0.80 (0.77)

Sample 1998/3-2004/1

Model (17) (18) (19) (20) (21)

3.16*** 3.16*** 1.73*** 4.97*** 7.69***

(0.84) (0.86) (0.52) (1.87) (2.31)

2.04*** 1.91*** 0.67* 7.49***

(0.63) (0.61) (0.40) (2.13)

1.76*** 1.91*** 0.76*** 7.43*** 12.87***

(0.52) (0.49) (0.23) (2.19) (3.12)

0.61*** 0.56*** 0.25*** 25.67*** 46.96***

(0.15) (0.14) (0.09) (8.14) (12.29)

0.11** 4.54*** 15.60***

(0.05) (1.31) (4.21)

0.18** 0.20*** -1.07*** -2.06***

(0.08) (0.07) (0.34) (0.69)

-1.78* 3.76*** 9.46***

(0.97) (0.90) (2.37)

3.87*** 3.82*** 3.04*** 29.91*** 59.74***

(0.94) (0.99) (0.83) (9.94) (13.69)

McFadden 0.64 (0.54) 0.64 (0.54) 0.52 (0.45) 0.83 (0.72) 0.88 (0.76)

McKelvey-Zavoina 0.96 (0.93) 0.96 (0.93) 0.85 (0.83) 0.99 (0.95) 1.00 (0.97)

Hit rate 0.83 (0.73) 0.82 (0.72) 0.76 (0.69) 0.90 (0.90) 0.94 (0.89)

Prob > 2 0.223(0.054) 0.257(0.078) 0.480(0.039) 0.404(0.020)

1998/3 - 2004/1 2004/2 - 2009/12

CPIxac t CPItri t

c USD t [E_Inf_Ips t-Tart]

cE_USD_Reu t aBTSIcli t

WIBOR6Mt-R t E_GDP_Reu t

m WIBOR1Mt

E_GDP_Reu t

bias t

skew t skew t



1999/2 - 2004/1 2004/2 - 2009/12

m WIBOR1Mt

c USD t WIBOR[12M-1M] t

cE_USD_Reu t Depositt

CPIxac t [E_Inf_Ips t-Tart]

E_CPI_Reu t-Tart I[E_CPI_NBP t>Tart]

WIBOR6Mt-R t

Notes: The ordered probit estimations with Huber(1967)/White(1980) robust standard errors in parantheses. ***/**/* denote

significance at 1/5/10 % level, respectively. The cutpoints are estimated, but not reported here. Data on a WIBOR12Mt are available

since 2002/01 only, the data before are set to zero.

Taylor rules augmented with exchange rate, market interest rate and "policy bias"

Favored empirical policy rules

I[1999/1] biast

skew t skew t



Likelihood-ratio test of equality of coefficients across response categories with (without) skew t

a WIBOR12Mt

policy makers votes and predictability of monetary policy - november 28

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