IDEAS home Printed from https://ideas.repec.org/a/cii/cepiie/2021-q3-167-4.html
   My bibliography  Save this article

Uncovering the implicit short-term inflation target of the Bank of England

Author

Listed:
  • Sheng Zhu
  • Ella Kavanagh
  • Niall O'Sullivan

Abstract

We re-investigate the traditional thinking of a fixed inflation target within an inflation-targeting central bank, the Bank of England (BOE). Drawing on extensive readings of the BOE's publications, we investigate whether, in addition to setting the officially announced inflation target based on its medium to long-term considerations, the BOE has short-term inflation targets that periodically differ from its medium-term objective. By estimating a New Keynesian model, we uncover that the Monetary Policy Committee of the BOE set short-term targets while gradually bringing inflation to the announced medium-term inflation objective. We also find that the Bank of England's short-term inflation target helps to explain the inflation path in the UK and the periodic and sustained movements in inflation away from its official target. This implicit short-term inflation target was time-varying in response to exogenous shocks, cost-push shocks and technology shocks.

Suggested Citation

  • Sheng Zhu & Ella Kavanagh & Niall O'Sullivan, 2021. "Uncovering the implicit short-term inflation target of the Bank of England," International Economics, CEPII research center, issue 167, pages 120-135.
    • Handle: RePEc:cii:cepiie:2021-q3-167-4
    as

    Download full text from publisher

    File URL: https://www.sciencedirect.com/science/article/pii/S2110701721000433
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kavanagh, Ella & Zhu, Sheng & O’Sullivan, Niall, 2022. "Monetary policy, trade-offs and the transmission of UK Monetary Policy," Journal of Policy Modeling, Elsevier, vol. 44(6), pages 1128-1147.

    More about this item

    Keywords

    Inflation target; New Keynesian;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cii:cepiie:2021-q3-167-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cepiifr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.