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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. Copyright 2005 Blackwell Publishing Ltd.

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  • 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
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    References listed on IDEAS

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    Cited by:

    1. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2014. "How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 18(03), pages 593-630, April.
    2. Christopher Adam & David Cobham, 2004. "Real-time output gaps in the estimation of Taylor rules: A red herring?," Economics Series Working Papers 218, University of Oxford, Department of Economics.
    3. Eric Girardin & Sandrine Lunven & Guonan Ma, 2014. "Inflation and China's monetary policy reaction function: 2002-2013," BIS Papers chapters,in: Bank for International Settlements (ed.), Globalisation, inflation and monetary policy in Asia and the Pacific, volume 77, pages 159-170 Bank for International Settlements.
    4. Ram Sharan Kharel & Christopher Martin & Costas Milas, 2010. "The Complex Response Of Monetary Policy To The Exchange Rate," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 103-117, February.
    5. Juan Paez-Farrell, 2009. "Monetary policy rules in theory and in practice: evidence from the UK and the US," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2037-2046.
    6. David Cobham & Yue Kang, 2013. "Time Horizons and Smoothing in the Bank of England's Reaction Function: The Contrast Between the Standard GMM and Ex Ante Forecast Approaches," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(5), pages 662-679, October.
    7. repec:ebl:ecbull:v:30:y:2010:i:1:p:624-635 is not listed on IDEAS
    8. David, Cobham, 2013. "Monetary policy under the Labour government 1997- 2010: the first 13 years of the MPC," SIRE Discussion Papers 2013-23, Scottish Institute for Research in Economics (SIRE).
    9. Christopher Martin & Costas Milas, 2007. "Monetary Policy and the Hybrid Phillips Curve," Keele Economics Research Papers KERP 2007/12, Centre for Economic Research, Keele University.
    10. Kevin Lee & Nilss Olekalns & Kalvinder Shields, 2013. "Meta Taylor Rules for the UK and Australia; Accommodating Regime Uncertainty in Monetary Policy Analysis Using Model Averaging Methods," Manchester School, University of Manchester, vol. 81, pages 28-53, October.
    11. Eric Girardin & Sandrine Lunven & Guonan Ma, 2017. "China's evolving monetary policy rule: from inflation-accommodating to anti-inflation policy," BIS Working Papers 641, Bank for International Settlements.
    12. repec:rim:rimwps:36-07 is not listed on IDEAS
    13. repec:rim:rimwps:37-07 is not listed on IDEAS
    14. Christopher Adam & David Cobham, 2009. "Using Real-Time Output Gaps To Examine Past And Future Policy Choices," National Institute Economic Review, National Institute of Economic and Social Research, vol. 210(1), pages 98-110, October.
    15. repec:ris:apltrx:0337 is not listed on IDEAS
    16. Caroline Duburcq, 2010. "The Impact of Exchange Rate Regime on Interest Rates in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 47(135), pages 91-124.
    17. Caroline Duburcq & Eric Girardin, 2010. "Domestic and external factors in interest rate determination: the minor role of the exchange rate regime," Economics Bulletin, AccessEcon, vol. 30(1), pages 624-635.
    18. David Cobham, 2013. "Monetary policy under the Labour government: the first 13 years of the MPC," Oxford Review of Economic Policy, Oxford University Press, vol. 29(1), pages 47-70, SPRING.
    19. Cover, James P. & Mallick, Sushanta K., 2012. "Identifying sources of macroeconomic and exchange rate fluctuations in the UK," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1627-1648.
    20. Roman Horváth, 2007. "Estimating Time-Varying Policy Neutral Rate in Real Time," Working Papers IES 2007/01, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007.
    21. Christian Mose Nielsen, 2007. "Does the choice of interest rate data matter for the results of tests of the expectations hypothesis - some results for the UK," Money Macro and Finance (MMF) Research Group Conference 2006 132, Money Macro and Finance Research Group.

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