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Uncertainty and UK Monetary Policy

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  • Christopher Martin

    (Brunel University)

  • Costas Milas

    (City University)

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.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2004 with number 65.

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Date of creation: 17 Sep 2004
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Handle: RePEc:mmf:mmfc04:65

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. Nelson, Edward, 2001. "UK Monetary Policy 1972-97: A Guide Using Taylor Rules," CEPR Discussion Papers 2931, C.E.P.R. Discussion Papers.
  2. J. J. Dolado & R. Maria-Dolores & F. J. Ruge-Murcia, 2002. "Nonlinear Monetary Policy Rules: Some New Evidence For The Us," Economics Working Papers we022910, Universidad Carlos III, Departamento de Economía.
  3. 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.
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  8. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  9. Bennett T. McCallum, 1999. "Recent developments in the analysis of monetary policy rules," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-12.
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  12. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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  17. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  20. repec:cup:macdyn:v:8:y:2004:i:1:p:27-50 is not listed on IDEAS
  21. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Wiley Blackwell, vol. 2(1), pages 85-116, April.
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  23. Gabriel Srour, 2003. "Some Notes on Monetary Policy Rules with Uncertainty," Working Papers 03-16, Bank of Canada.
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