Modelling Monetary Policy: Inflation Targeting in Practice

Christopher Martin and Costas Milas

No 137, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper estimates a simple structural model of monetary policy in the UK for 1963-2000, focusing on the policy of inflation targeting introduced in 1992. Our main findings are: i) the adoption of inflation targets led to significant changes in monetary policy giving greater weight to inflation; (ii) monetary policy post-1992 is asymmetric as policy makers respond more to upward deviation of inflation away from the target; (iii) in the post-1992 period policymakers may be attempting to keep inflation within the range of 1.4%-2.6% rather than pursuing a point target of 2.5%; (iv) monetary policy is more responsive to inflation when it is further from the target.

Date: 2002-08-29
New Economics Papers: this item is included in nep-cba, nep-fin and nep-mon
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