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Monetary Frameworks and Institutional Constraints: UK Monetary Policy Reaction Functions, 1985–2003

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  • Christopher Adam
  • David Cobham
  • Eric Girardin

Abstract

Monetary policy reaction functions are estimated for the UK over three periods – 1985–90, 1992–97 and 1997–2003 – in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument‐independence in 1997. The external factors considered include US as well as German interest rates, and this leads to the identification of ‘domestic’ and ‘international’ models of the reaction function. The results suggest that it is the changes in the institutional arrangements rather than those in the targeting regime which have been decisive in the development of policy in this period.

Suggested Citation

  • Christopher Adam & David Cobham & Eric Girardin, 2005. "Monetary Frameworks and Institutional Constraints: UK Monetary Policy Reaction Functions, 1985–2003," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(4), pages 497-516, August.
    • Handle: RePEc:bla:obuest:v:67:y:2005:i:4:p:497-516
    DOI: 10.1111/j.1468-0084.2005.00129.x
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