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Monetary policy rules in theory and in practice: evidence from the UK and the US

  • Juan Paez-Farrell

Given the large amount of interaction between research on monetary policy and its practice, this article examines whether some simple monetary policy rules that have been proposed in the academic literature, part of which has originated from within central banks, provide a reasonable characterization of actual policy in the United Kingdom and the United States. The article finds the simple rule that describes best the actual US monetary policy is a speed limit rule with dynamics, whilst for the UK it is a forward-looking rule. The simpler dynamics in the UK's monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840701689496
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 16 ()
Pages: 2037-2046

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Handle: RePEc:taf:applec:v:41:y:2009:i:16:p:2037-2046
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