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Monetary Policy Rules in Theory and in Practice: Evidence from the UK and the US

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  • Páez-Farrell, Juan

    ()

    (Cardiff Business School)

Abstract

Given the large amount of interaction between research on monetary policy and its practice, this paper 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 characterisation of actual policy in the UK and the US. The paper finds that the simple rule that describes best 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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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2007/13.

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Length: 30 pages
Date of creation: May 2007
Handle: RePEc:cdf:wpaper:2007/13
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  3. Athanasios Orphanides & John C. Williams, 2002. "Robust Monetary Policy Rules with Unknown Natural Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 63-146.
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Cited by:

  1. Paez-Farrell, Juan, 2014. "Resuscitating the ad hoc loss function for monetary policy analysis," Economics Letters, Elsevier, vol. 123(3), pages 313-317.
  2. Brendon, Charles & Paustian, Matthias & Yates, Tony, 2013. "The pitfalls of speed-limit interest rate rules at the zero lower bound," Bank of England working papers 473, Bank of England.
  3. Juan Paez-Farrell, 2015. "Taylor rules, central bank preferences and inflation targeting," Working Papers 2015023, The University of Sheffield, Department of Economics.
  4. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
  5. Muneesh Kapur & Michael Debabrata Patra, 2010. "A Monetary Policy Model Without Money for India," IMF Working Papers 10/183, International Monetary Fund.

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