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Targets, Zones and Asymmetries:A Flexible Nonlinear Model of Recent UK Monetary Policy

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  • Virginie Boinet

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  • Christopher Martin

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Abstract

We estimate a flexible model of the behaviour of UK monetary policymakers in the era of inflation targeting based on a new representation of policymaker’s preferences. This enables us to address a range of issues that are beyond the scope of the existing literature. We find a complex relationship between interest rates and inflation: interest rates are passive when inflation is close to the target but there is an increasingly vigorous response as inflation deviates further from the target. We also find that the response to the output gap is linear and find no evidence of a nonlinear Phillips curve.

Suggested Citation

  • Virginie Boinet & Christopher Martin, 2005. "Targets, Zones and Asymmetries:A Flexible Nonlinear Model of Recent UK Monetary Policy," Economics and Finance Discussion Papers 05-21, Economics and Finance Section, School of Social Sciences, Brunel University.
  • Handle: RePEc:bru:bruedp:05-21
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    12. A. Robert Nobay & David A. Peel, 2003. "Optimal Discretionary Monetary Policy in a Model of Asymmetric Central Bank Preferences," Economic Journal, Royal Economic Society, vol. 113(489), pages 657-665, July.
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    1. repec:ibn:ijefaa:v:10:y:2018:i:4:p:25-32 is not listed on IDEAS
    2. repec:lan:wpaper:2364 is not listed on IDEAS
    3. Ruthira Naraidoo & Leroi Raputsoane, 2010. "Zone‐Targeting Monetary Policy Preferences And Financial Market Conditions: A Flexible Non‐Linear Policy Reaction Function Of The Sarb Monetary Policy," South African Journal of Economics, Economic Society of South Africa, vol. 78(4), pages 400-417, December.
    4. repec:lan:wpaper:2587 is not listed on IDEAS
    5. Naraidoo, Ruthira & Raputsoane, Leroi, 2011. "Optimal monetary policy reaction function in a model with target zones and asymmetric preferences for South Africa," Economic Modelling, Elsevier, vol. 28(1-2), pages 251-258, January.
    6. Peter J. Stemp, 2009. "Optimal Monetary Policy with Asymmetric Targets," Monash Economics Working Papers 33-09, Monash University, Department of Economics.
    7. Naraidoo, Ruthira & Paya, Ivan, 2012. "Forecasting monetary policy rules in South Africa," International Journal of Forecasting, Elsevier, vol. 28(2), pages 446-455.
    8. de Mello Luiz & Moccero Diego & Mogliani Matteo, 2013. "Do Latin American Central Bankers Behave Non-Linearly? The Experiences of Brazil, Chile, Colombia and Mexico," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(2), pages 141-165, April.
    9. repec:lan:wpaper:2444 is not listed on IDEAS
    10. Ma, Yong, 2016. "Nonlinear monetary policy and macroeconomic stabilization in emerging market economies: Evidence from China," Economic Systems, Elsevier, vol. 40(3), pages 461-480.
    11. Mustafa Caglayan & Zainab Jehan & Kostas Mouratidis, 2016. "Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the Uk," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(3), pages 279-293, July.

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