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UK monetary policy 1972-97: a guide using Taylor rules

  • Edward Nelson

This paper estimates simple interest rate reaction functions or 'Taylor rules' for different UK monetary policy regimes. In the period between the floating of sterling in June 1972 and the Bank of England receiving operational independence in May 1997, UK monetary policy went through several regimes, including: the early 1970s, when monetary policy was subordinate to incomes policy as the primary weapon against inflation; oM3 targeting in the late 1970s and early 1980s; moves in the late 1980s toward greater exchange rate management, culminating in UK membership of the ERM from 1990 to 1992; and inflation targeting from October 1992.

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File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2000/wp120.pdf
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Paper provided by Bank of England in its series Bank of England working papers with number 120.

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Date of creation: Jul 2000
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Handle: RePEc:boe:boeewp:120
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  1. Henderson, Dale W. & McKibbin, Warwick J., 1993. "A comparison of some basic monetary policy regimes for open economies: implications of different degrees of instrument adjustment and wage persistence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 221-317, December.
  2. Peter N. Ireland, 2002. "Endogenous Money or Sticky Prices?," NBER Working Papers 9390, National Bureau of Economic Research, Inc.
  3. Muscatelli, V Anton & Tirelli, Patrizio & Trecroci, Carmine, 2002. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform and Interest Rate Policy in the OECD Countries," Manchester School, University of Manchester, vol. 70(4), pages 487-527, Special I.
  4. Batini, Nicoletta & Nelson, Edward, 2000. "Optimal Horizons for Inflation Targeting," Working Paper Series 103, Sveriges Riksbank (Central Bank of Sweden).
  5. 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.
  6. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
  7. Wright, Stephen, 1998. "Monetary Policy, Nominal Interest Rates, and Long-horizon Inflation Uncertainty," Cambridge Working Papers in Economics 9820, Faculty of Economics, University of Cambridge.
  8. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory 96-05, Federal Reserve Bank of San Francisco.
  9. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-15, March.
  10. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does talk matter after all? Inflation targeting and central bank behavior," Staff Reports 88, Federal Reserve Bank of New York.
  11. Nelson, Edward, 2001. "Direct Effects of Base Money on Aggregate Demand: Theory and Evidence," CEPR Discussion Papers 2666, C.E.P.R. Discussion Papers.
  12. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Wiley Blackwell, vol. 2(1), pages 85-116, April.
  13. Lars E. O. Svensson, 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 426-477, June.
  14. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
  15. Martin, Christopher & Costas Milas, 2002. "Modelling Monetary Policy: Inflation Targeting in Practice," Royal Economic Society Annual Conference 2002 137, Royal Economic Society.
  16. C.A.E. Goodhart, 1997. "Whither now?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(203), pages 385-430.
  17. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies.
  18. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
  19. C.A.E. Goodhart, 1997. "Whither now?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(203), pages 385-430.
  20. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
  21. Bennett T. McCallum & Edward Nelson, 1999. "Performance of Operational Policy Rules in an Estimated Semiclassical Structural Model," NBER Chapters, in: Monetary Policy Rules, pages 15-56 National Bureau of Economic Research, Inc.
  22. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc.
  23. Johnson, Harry G., 1972. "The Monetary Approach to Balance-of-Payments Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(02), pages 1555-1572, March.
  24. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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