Taylor, Mark P., 1958- and Davradakis, Emmanuel. (2006) Interest rate setting and inflation targeting : evidence of a nonlinear Taylor rule for the United Kingdom. Studies in Nonlinear Dynamics & Econometrics, Vol.10 (No.4). ISSN 1558-3708

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Abstract

We examine potential nonlinear behaviour in the conduct of monetary policy by the Bank of England. We find significant nonlinearity in this policy setting, and in particular that the standard Taylor rule really only begins to bite once expected inflation is significantly above its target. This suggests, for example, that while the stated objective of the Bank of England is to pursue a symmetric inflation target, in practice some degree of asymmetry has crept into interest-rate setting. We argue that, nevertheless, the very predictability of the policy rule, especially when set out in a highly plausible and intuitive nonlinear framework, is perhaps one reason why the United Kingdom has, since the early 1990s, enjoyed price stability combined with relatively strong growth.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Taylor's rule, Interest rates -- Great Britain, Great Britain -- Monetary policy
Journal or Publication Title:	Studies in Nonlinear Dynamics & Econometrics
Publisher:	Berkeley Electronics Press
ISSN:	1558-3708
Date:	2006
Volume:	Vol.10
Number:	No.4
Identification Number:	10.2202/1558-3708.1359
Status:	Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/189

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