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Uncertainty and UK Monetary Policy

Author

Listed:
  • Christopher Martin

    (Brunel University)

  • Costas Milas

    () (Keele University, Department of Economics)

Abstract

This paper provides empirical evidence on the response of monetary policymakers to uncertainty. Using data for the UK since the introduction of inflation targets in October 1992, we find that the impact of inflation on interest rates is lower when inflation is more uncertain and is larger when the output gap is more uncertain. These findings are consistent with the predictions of the theoretical literature. We also find that uncertainty has reduced the volatility but has not affected the average value of interest rates and argue that monetary policy would have been less passive in the absence of uncertainty.

Suggested Citation

  • Christopher Martin & Costas Milas, 2005. "Uncertainty and UK Monetary Policy," Keele Economics Research Papers KERP 2005/11, Centre for Economic Research, Keele University.
  • Handle: RePEc:kee:kerpuk:2005/11
    as

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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0511.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Monetary policy; uncertainty;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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