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Uncertainty and UK Monetary Policy

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  • Christopher Martin

    ()

  • Costas Milas

    ()

Abstract

This paper provides empirical evidence on the response of monetary policymakers to uncertainty. Using data for the UK since the introduction of inflation targets in October 1992, we find that the impact of inflation on interest rates is lower when inflation is more uncertain and is larger when the output gap is more uncertain. These findings are consistent with the predictions of the theoretical literature. We also find that uncertainty has reduced the volatility but has not affected the average value of interest rates and argue that monetary policy would have been less passive in the absence of uncertainty.

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Bibliographic Info

Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Public Policy Discussion Papers with number 04-11.

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Length: 20 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:bru:bruppp:04-11

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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