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The Cost of Political Intervention in Monetary Policy

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  • David Cobham
  • Athanasios Papadopoulos

    (Crete)

  • George Zis

    (Manchester Metropolitan)

Abstract

Data from a unique monetary 'experiment' conducted in the UK during the period 1994-97 are used to investigate the cost of political intervention in monetary policy. The paper finds that the difference between government bond yields in Germany (but not the US) and the UK was systematically related to an index of the credibility of monetary policy constructed on the basis of the frequency of agreements / disagreements between the Minister of Finance who took the decisions on interest rates and the Bank of England, whose recommendations were published with a lag, with disagreements causing an increase in the yield differential.

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Bibliographic Info

Paper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 200114.

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Date of creation: 15 Dec 2001
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Handle: RePEc:san:wpecon:0114

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Keywords: monetary policy; time-inconsistency; credibility.;

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