Targets, zones, and asymmetries: a flexible nonlinear model of recent UK monetary policy

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Abstract

We estimate a flexible model of the behaviour of UK monetary policymakers in the era of inflation targeting based on a new representation of policymaker's preferences. This enables us to address a range of issues that are beyond the scope of the existing literature. We find a complex relationship between interest rates and inflation: interest rates are passive when inflation is close to the target but there is an increasingly vigorous response as inflation deviates further from the target.
Original languageEnglish
Pages (from-to)423-439
Number of pages17
JournalOxford Economic Papers
Volume60
Issue number3
Early online date5 Mar 2008
DOIs
Publication statusPublished - Jul 2008

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