Uncertainty and UK Monetary Policy

Christopher Martin and Costas Milas

No KERP 2005/11, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: This paper provides empirical evidence on the response of monetary policymakers to uncertainty. Using data for the UK since the introduction of inflation targets in October 1992, we find that the impact of inflation on interest rates is lower when inflation is more uncertain and is larger when the output gap is more uncertain. These findings are consistent with the predictions of the theoretical literature. We also find that uncertainty has reduced the volatility but has not affected the average value of interest rates and argue that monetary policy would have been less passive in the absence of uncertainty.

Keywords: Monetary policy; uncertainty (search for similar items in EconPapers)
JEL-codes: C51 C52 E52 E58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2005-02
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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http://www.keele.ac.uk/depts/ec/wpapers/kerp0511.pdf (application/pdf)

Related works:
Working Paper: Uncertainty and UK Monetary Policy (2004)
Working Paper: Uncertainty and UK Monetary Policy (2004)
Working Paper: Uncertainty and UK Monetary Policy (2004)
Working Paper: Uncertainty and UK Monetary Policy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:kee:kerpuk:2005/11

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