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Asymmetries in Bank of England monetary policy

  • Jamie Gascoigne
  • Paul Turner

This article estimates limited dependent variable models for Bank of England monetary policy using monthly data over the period June 1997-March 2003. During this period the Bank had operational independence to set the interest rate in order to meet the inflation target set by the government. The study finds evidence that the Bank has responded to current output growth rather than inflation, which is consistent with targeting future inflation when there is a lag in the response of inflation to the output gap. It also finds evidence of an asymmetry in the sense that the link between the interest rate and output growth is stronger when an increase in the interest rate is required than when circumstances dictate it should be cut. On the other hand there is considerably more inertia for interest rate cuts, in the sense that a cut in the rate in one month significantly increases the probability of a cut in the next month which is not the case for increases.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 10 ()
Pages: 615-618

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Handle: RePEc:taf:apeclt:v:11:y:2004:i:10:p:615-618
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  1. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  2. Dolado, Juan J. & María-Dolores, Ramón & Naveira Barrero, Manuel, 2000. "Asymmetries In Monetary Policy Rules: Evidence For Four Central Banks," CEPR Discussion Papers 2441, C.E.P.R. Discussion Papers.
  3. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
  4. Glenn D. Rudebusch, 2001. "Is The Fed Too Timid? Monetary Policy In An Uncertain World," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 203-217, May.
  5. Bean, Charles, 1998. "The New UK Monetary Arrangements: A View from the Literature," Economic Journal, Royal Economic Society, vol. 108(451), pages 1795-1809, November.
  6. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
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