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Deflation Probability and the Scope for Monetary Loosening in the United Kingdom

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  • Alex Haberis

    (Bank of England, Centre for Macroeconomics, London)

  • Riccardo M. Masolo

    (Bank of England, Centre for Macroeconomics, London)

  • Kate Reinold

    (Bank of England)

Abstract

We use an estimated DSGE model of the U.K. economy to investigate perceptions of the scope for monetary loosening since the 2007-08 financial crisis. We simulate our model under alternative assumptions about the constraints on monetary policy and compare the implied deflation probabilities with those expected by professional forecasters, financial markets (from options prices), and policymakers. We find that these real-time, external estimates of deflation probability are consistent with policy not having been perceived to have been constrained since the crisis.

Suggested Citation

  • Alex Haberis & Riccardo M. Masolo & Kate Reinold, 2019. "Deflation Probability and the Scope for Monetary Loosening in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 15(1), pages 233-277, March.
    • Handle: RePEc:ijc:ijcjou:y:2019:q:1:a:6
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    Cited by:

    1. repec:hal:spmain:info:hdl:2441/6gjj4t61tm90aauv9v241g1u29 is not listed on IDEAS
    2. Christophe Blot & Paul Hubert, 2018. "Monetary policy with transitory vs. permanently low growth," SciencePo Working papers Main hal-03404318, HAL.
    3. Christophe Blot & Jérôme Creel & Paul Hubert, 2019. "Thoughts on a review of the ECB's monetary policy strategy," SciencePo Working papers Main hal-03403251, HAL.
    4. Alex Haberis & Riccardo M. Masolo & Kate Reinold, 2019. "Deflation Probability and the Scope for Monetary Loosening in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 15(1), pages 233-277, March.
    5. repec:hal:spmain:info:hdl:2441/1fsnu13sl59jsautsd9gpjrj59 is not listed on IDEAS
    6. Christophe Blot & Paul Hubert, 2018. "Monetary policy with transitory vs. permanently low growth," Sciences Po publications info:hdl:2441/6gjj4t61tm9, Sciences Po.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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