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Targets, Zones and Asymmetries:A Flexible Nonlinear Model of Recent UK Monetary Policy

Virginie Boinet () and Christopher Martin ()

Economics and Finance Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: We estimate a flexible model of the behaviour of UK monetary policymakers in the era of inflation targeting based on a new representation of policymaker’s preferences. This enables us to address a range of issues that are beyond the scope of the existing literature. We find a complex relationship between interest rates and inflation: interest rates are passive when inflation is close to the target but there is an increasingly vigorous response as inflation deviates further from the target. We also find that the response to the output gap is linear and find no evidence of a nonlinear Phillips curve.

Pages: 25 pages
Date: 2005-10
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Journal Article: Targets, zones, and asymmetries: a flexible nonlinear model of recent UK monetary policy (2008) Downloads
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