Taylor, Mark P. and Davradakis, Emmanuel. (2006) Interest rate setting and inflation targeting: Evidence of a nonlinear Taylor rule for the United Kingdom. STUDIES IN NONLINEAR DYNAMICS AND ECONOMETRICS, 10 (4). -. ISSN 1081-1826

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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 > HC Economic History and Conditions H Social Sciences
Journal or Publication Title:	STUDIES IN NONLINEAR DYNAMICS AND ECONOMETRICS
Publisher:	BERKELEY ELECTRONIC PRESS
ISSN:	1081-1826
Date:	December 2006
Volume:	10
Number:	4
Number of Pages:	20
Page Range:	-
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/32357

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