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Abstract

This article estimates limited dependent variable models for Bank of England monetary policy using monthly data over the period June 1997-March 2003. During this period the Bank had operational independence to set the interest rate in order to meet the inflation target set by the government. The study finds evidence that the Bank has responded to current output growth rather than inflation, which is consistent with targeting future inflation when there is a lag in the response of inflation to the output gap. It also finds evidence of an asymmetry in the sense that the link between the interest rate and output growth is stronger when an increase in the interest rate is required than when circumstances dictate it should be cut. On the other hand there is considerably more inertia for interest rate cuts, in the sense that a cut in the rate in one month significantly increases the probability of a cut in the next month which is not the case for increases.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 10 ()
Pages: 615-618

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Handle: RePEc:taf:apeclt:v:11:y:2004:i:10:p:615-618

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Find related papers by JEL classification:

• E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
• E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
• C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

References

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1. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
   
   • Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
   • Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
   • Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
   • Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
2. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
   
   • Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
   • Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
   • Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
3. Bean, Charles, 1998. "The New UK Monetary Arrangements: A View from the Literature," Economic Journal, Royal Economic Society, vol. 108(451), pages 1795-1809, November.
4. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
   
   • Tom Doan, . "DISAGGREGATE: RATS procedure to implement general disaggregation (interpolation/distribution) procedure," Statistical Software Components RTS00050, Boston College Department of Economics.
   • Tom Doan, . "CHOWLIN: RATS procedure to distribute a series to a higher frequency using related series," Statistical Software Components RTS00036, Boston College Department of Economics.
5. Dolado, Juan J. & María-Dolores, Ramón & Naveira Barrero, Manuel, 2000. "Asymmetries In Monetary Policy Rules: Evidence For Four Central Banks," CEPR Discussion Papers 2441, C.E.P.R. Discussion Papers.
6. Glenn D. Rudebusch, 2001. "Is The Fed Too Timid? Monetary Policy In An Uncertain World," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 203-217, May.
   
   • Glenn D. Rudebusch, 1999. "Is the Fed too timid? Monetary policy in an uncertain world," Working Papers in Applied Economic Theory 99-05, Federal Reserve Bank of San Francisco.

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Citations

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Cited by:

1. Sean Holly & Arnab Bhattacharjee, 2005. "Inflation Targeting, Committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Computing in Economics and Finance 2005 119, Society for Computational Economics.
   
   • Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
   • Bhattacharjee, A. & Holly, S., 2005. "Inflation Targeting, Committee Decision Making and Uncertainty: The case of the Bank of England’s MPC," Cambridge Working Papers in Economics 0530, Faculty of Economics, University of Cambridge.
   • Arnab Bhattacharjee & Sean Holly, 2005. " Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England’s MPC," CDMA Working Paper Series 0503, Centre for Dynamic Macroeconomic Analysis.
2. Michał Brzoza-Brzezina & Jacek Kotłowski & Agata Miśkowiec, 2012. "How forward looking are central banks? Some evidence from their forecasts," National Bank of Poland Working Papers 112, National Bank of Poland, Economic Institute.
   
   • Michał Brzoza-Brzezina & Jacek Kotłowski & Agata Miśkowiec, 2013. "How forward-looking are central banks? Some evidence from their forecasts," Applied Economics Letters, Taylor and Francis Journals, vol. 20(2), pages 142-146, February.
3. Arnab Bhattacharjee & Sean Holly, 2006. " Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC," CDMA Working Paper Series 0612, Centre for Dynamic Macroeconomic Analysis.
4. Kondo, Kazumine, 2011. "Have credit rating agencies become more stringent towards Japanese regional banks?," MPRA Paper 30500, University Library of Munich, Germany.
5. Jef Boeckx, 2011. "Estimating monetary policy reaction functions : A discrete choice approach," Working Paper Research 210, National Bank of Belgium.

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