In this paper the authors estimate empirical reaction functions for the Monetary Council of the Central Bank of Hungary (Magyar Nemzeti Bank, MNB) and the Monetary Policy Council of the National Bank of Poland (NBP) to study preference heterogeneity in these policy committees.

The authors are aware that detecting diversity in monetary policy committees may be hampered by several factors that are linked to the confidential nature of the policy-making process. That is why the authors pursue an indirect measurement and conduct an econometric analysis based on (pooled) Taylor-type reaction functions. The authors estimate this using real-time information available from published inflation reports and (individual) voting records. The empirical analysis includes the Monetary Policy Committee (MPC) of the Central Bank of MNB and NBP during the period 2005−2010.

Applying these empirical reaction functions, the paper suggests that like for other central banks in the Western hemisphere, diversity across policy-makers is an important feature of voting by monetary policy committees in inflation targeting countries of the CEE. Unlike for monetary policy committees of advanced economies, the authors find preference heterogeneity to be random for both the members of the Polish Monetary Policy Council and those of the Monetary Council of the MNB.

A separate cluster analysis indicates that in both committees internal and external members may vote differently. The MNB case illustrates that internal and external members may mainly differ in terms of their reaction to changes in the economic outlook. By and large, internal members react more aggressively in response to changes in the inflation gap than external members.

The NBP is an example of a committee with different preferences between the chairman, i.e. the only internal member and external members. Members’ preferences cluster closely around the committee mean with the exception of the chairman’s preference which takes a corner position. This may imply that whenever the chairman assumes an extreme position with regard to interest rate setting the other committee members may not follow him and dissent.

Finally, the authors state that a possible direction for further research would be to assess the question whether observed preference heterogeneity in these committees influences the performance of the central bank in achieving its inflation target.