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Asymmetries in Bank of England Monetary Policy

Gascoigne, J. and Turner, P. (2003) Asymmetries in Bank of England Monetary Policy. Working Paper. Department of Economics, University of Sheffield ISSN 1749-8368

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Abstract

In this paper we estimate limited dependent variable models for Bank of England monetary policy using monthly data over the period June 1997 to March 2003. During this period the Bank has had operational independence to set the interest rate in order to meet the inflation target set by the Government. We find evidence that the Bank has responded to current output growth rather than inflation which is consistent with targeting future inflation when there is a lag in the response of inflation to the output gap. We also find evidence of an asymmetry in the sense that the link between the interest rate and output growth is stronger when an increase in the interest rate is required than when circumstances dictate it should be cut. On the other hand there is considerably more inertia for interest rate cuts in the sense that a cut in the rate in one month significantly increases the probability of a cut in the next month which is not the case for increases.

Item Type: Monograph (Working Paper)
Copyright, Publisher and Additional Information: The Sheffield Economics Research Paper (SERP) series offers a forum for the research output of the academic staff and research students of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by a departmental editor. However, the contents and opinions expressed remain the responsibility of the authors. All papers may be downloaded free on the understanding that the contents are preliminary and therefore permission from the author(s) should be sought before they are referenced.
Keywords: Monetary policy reaction functions, Central Bank independence, binary choice models
Institution: The University of Sheffield
Academic Units: The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) > Sheffield Economics Research Papers Series
Depositing User: Repository Officer
Date Deposited: 20 Oct 2009 12:22
Last Modified: 09 Jun 2014 12:07
Published Version: http://www.shef.ac.uk/economics/research/serps/yea...
Status: Published
Publisher: Department of Economics, University of Sheffield
Identification Number: Sheffield Economic Research Paper Series 2003007
Related URLs:
URI: http://eprints.whiterose.ac.uk/id/eprint/9880

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