HAS MONETARY POLICY REACTED TO ASSET PRICE MOVEMENTS: EVIDENCE FROM THE UK

Alexandros Kontonikas () and Alberto Montagnoli ()

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

Abstract: This paper examines the relationship between monetary policy and asset prices in the context of empirical policy rules. We begin our analysis by establishing the forecasting ability of house and stock price changes with respect to future aggregate demand. We then report estimates of monetary policy reaction functions for the United Kingdom over the period 1992-2003. We find that UK policymakers appear to take into account the effect of asset price inflation when setting interest rates with a higher weight being assigned to property market fluctuations. Asset inflationaugmented rules describe more accurately actual policy, and the results are robust to modelling the effect of the Bank of England independence.

Pages: 22 pages
Date: 2002-04
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Related works:
Journal Article: Has Monetary Policy Reacted to Asset Price Movements? Evidence from the UK (2004)
Working Paper: HAS MONETARY POLICY REACTED TO ASSET PRICE MOVEMENTS: EVIDENCE FROM THE UK (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bru:bruppp:02-11

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