Market beliefs about the UK monetary policy life-off horizon: a no-arbitrage shadow rate term structure model approach

Martin M Andreasen () and Andrew Meldrum
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Martin M Andreasen: Aarhus University and CREATES

No 541, Bank of England working papers from Bank of England

Abstract: We use a no-arbitrage shadow rate term structure model to estimate investors’ views about the timing of monetary policy ‘lift-off’ in the United Kingdom over time. Our estimates show that when the UK policy rate was first cut to 0.5%, in March 2009, investors believed that it would remain at the lower bound only for a short period, with an estimated probability of 70% that the policy rate would rise above 0.75% within twelve months. The estimated median horizon for policy rate lift-off rose sharply in 2012 but fell back to thirteen months by the end of our sample period, in May 2014.

Keywords: Shadow rate models; sequential regression estimation; policy lift-off; zero lower bound. (search for similar items in EconPapers)
JEL-codes: C10 C50 G12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-08-14
New Economics Papers: this item is included in nep-cba, nep-ger and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0541

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