What’s in a Second Opinion? Shadowing the ECB and the Bank of England

Abstract

One way of evaluating how well monetary authorities perform is to provide the public with a regular and independent second opinion. The European Central Bank (ECB) and the Bank of England are shadowed by professional and academic economists who provide a separate policy rate recommendation in advance of the central bank announcement. We explore differences between shadow and actual committee decisions based on an adapted Taylor rule and report a few systematic differences. The shadow committee of the ECB tends to be relatively less inflation averse than the ECB’s Governing Council. Perhaps most significantly our interpretation of the stance of the shadow committees is sensitive to the use of real time data, especially during the global financial crisis.