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The macroeconomic effects of monetary policy: a new measure for the United Kingdom

James Cloyne and Patrick Hürtgen

No 493, Bank of England working papers from Bank of England

Abstract: This paper estimates the effects of monetary policy on the UK economy based on a new, extensive real-time forecast data set. Employing the Romer–Romer identification approach we first construct a new measure of monetary policy innovations for the UK economy. We find that a 1 percentage point increase in the policy rate reduces output by up to 0.6% and inflation by up to 1.0 percentage point after two to three years. Our approach resolves the price puzzle for the United Kingdom and we show that forecasts are crucial for this result. Finally, we show that the response of policy after the initial innovation is crucial for interpreting estimates of the effect of monetary policy. We can then reconcile differences across empirical specifications, with the wider vector autoregression literature and between our United Kingdom results and the larger narrative estimates for the United States.

Keywords: monetary policy; narrative identification; real-time forecasts; business cycles (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-03-28
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Related works:
Journal Article: The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom (2016) Downloads
Working Paper: The macroeconomic effects of monetary policy: A new measure for the United Kingdom (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0493

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