Potential information and target variables for UK monetary policy

Hakan Berument () and Richard Froyen

Applied Economics, 1998, vol. 30, issue 4, 449-463

Abstract: The relationship between traditional monetary policy goal variables (nominal GDP, real GPD and the inflation rate) and a number of financial market variables is investigated. The question examined is which if any of these financial market variables (monetary aggregates, interest rates and interest rate spreads) are potentially useful as either information variables or intermediate targets. While the implications concerning the usefulness of the financial variables considered are pessimistic concerning nominal GDP, more robust relationships are found for real GDP and inflation. The latter finding is of interest given the current UK monetary policy strategy of inflation targeting. Our results are, however, more supportive of the usefulness of several financial variables as information variables than as intermediate targets.

Date: 1998
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DOI: 10.1080/000368498325723

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