Monetary policy, trade-offs and the transmission of UK Monetary Policy

Ella Kavanagh, Sheng Zhu and O’Sullivan, Niall

Journal of Policy Modeling, 2022, vol. 44, issue 6, 1128-1147

Abstract: We provide a new method to model changes in monetary policy of the Bank of England (BoE) as well as the impact of these changes on UK economy. This is important as central bankers have widened the range of instruments in their monetary policy toolbox. Specifically, we estimate a proxy for the monetary policy stance and then analyse a time-varying parameter vector autoregressive with stochastic volatility model to explain the BoE’s trade-offs when making policy decisions and as well as to demonstrate dynamic impacts of monetary policy on inflation and economic growth. The empirical results show that our estimated monetary policy proxy is better at capturing the BoE’s policy when the interest rate lower bound becomes binding.

Keywords: Monetary policy proxy; Effective lower bound; Time-varying parameter vector autoregressive (search for similar items in EconPapers)
JEL-codes: C11 C15 E52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:44:y:2022:i:6:p:1128-1147

DOI: 10.1016/j.jpolmod.2022.10.006

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