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U.K. Monetary Policy under Inflation Targeting

Anh Nguyen

No 41, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: This paper considers a variety of reaction functions in the context of real time data to analyse U.K. monetary policy under inflation targeting adopted in 1992. In order to deal with lack of current and future data in real time, we construct the forecasts of expected variables in the first step and use the constructed data for the estimations of contemporaneous- and forward-looking rules. Moreover, we employ the impulse-indicator saturation method to deal with the issue of outliers and therefore obtain robust estimates of policy parameters. Our results show that the robust characteristics of monetary policy during the inflation targeting regime are forward-looking and raising the interest rate by more than one-to-one to movements in inflation, thereby satisfying the Taylor principle.

Keywords: Real-time data; Taylor rule; Forecasting; Impulse indicator saturation; Autometrics (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2017-03-02
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