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Asymmetries in Bank of England monetary policy

Author

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  • Jamie Gascoigne
  • Paul Turner

Abstract

This article estimates limited dependent variable models for Bank of England monetary policy using monthly data over the period June 1997-March 2003. During this period the Bank had operational independence to set the interest rate in order to meet the inflation target set by the government. The study finds 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. It also finds 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.

Suggested Citation

  • Jamie Gascoigne & Paul Turner, 2004. "Asymmetries in Bank of England monetary policy," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 615-618.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:10:p:615-618
    DOI: 10.1080/1350485042000227296
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    1. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(1), pages 147-180.
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    Cited by:

    1. Rebeca I. Muñoz Torres & David Shepherd, 2014. "Inflation Targeting and the Consistency of Monetary Policy Decisions in Mexico: an Empirical Analysis with Discrete Choice Models," Manchester School, University of Manchester, vol. 82, pages 21-46, December.
    2. Miao, Lijuan & Zhu, Feng & Sun, Zhanli & Moore, John C. & Cui, Xuefeng, 2016. "China's land-use changes during the past 300 years: a historical perspective," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 13(9), pages 1-16.
    3. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
    4. Michał Brzoza-Brzezina & Jacek Kotłowski & Agata Miśkowiec, 2013. "How forward-looking are central banks? Some evidence from their forecasts," Applied Economics Letters, Taylor & Francis Journals, vol. 20(2), pages 142-146, February.
    5. Arnab Bhattacharjee & Sean Holly, 2006. "Taking Personalities out of Monetary Policy Decision Making? Interactions, Heterogeneity and Committee Decisions in the Bank of England’s MPC," CDMA Working Paper Series 200612, Centre for Dynamic Macroeconomic Analysis.
    6. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski.
    7. Abdul RASHID & Farah WAHEED, 2021. "Forward-Backward-Looking Monetary Policy Rules: Derivation and Empirics," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 71-92, December.
    8. Kondo, Kazumine, 2011. "Have credit rating agencies become more stringent towards Japanese regional banks?," MPRA Paper 30500, University Library of Munich, Germany.
    9. Pranjal Rawat & Naveen Srinivasan, 2020. "Inflation Targeting in the United Kingdom: Is there evidence for Asymmetric Preferences?," Working Papers 2020-196, Madras School of Economics,Chennai,India.
    10. Paweł Baranowski, 2008. "Reguła Taylora i jej rozszerzenia," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 7-8, pages 1-23.
    11. Aleksandra Halka, 2016. "How the central bank’s reaction function in small open economies evolved during the crisis," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 301-318.
    12. Arnab Bhattacharjee & Sean Holly, 2004. "Inflation Targeting, committee Decision Making and Uncertainty: The case of the Bank of England's MPC," Money Macro and Finance (MMF) Research Group Conference 2004 63, Money Macro and Finance Research Group.
    13. utku altunöz, 2022. "Describing of central banks’ monetary policy in the context to linear and nonlinear taylor rule: the case of Turkey," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(6), pages 4641-4662, December.
    14. Naveen Srinivasan & Vidya Mahambare & M. Ramachandran, 2006. "UK monetary policy under inflation forecast targeting: is behaviour consistent with symmetric preferences?," Oxford Economic Papers, Oxford University Press, vol. 58(4), pages 706-721, October.
    15. Jef Boeckx, 2011. "Estimating monetary policy reaction functions : A discrete choice approach," Working Paper Research 210, National Bank of Belgium.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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