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An essay on the interactions between the Bank of England's forecasts, the MPC's policy adjustments, and the eventual outcome

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  • Goodhart, Charles

Abstract

There are long, (and often variable), lags between a change in interest rates and its effect on real output and inflation. Hence policy should be based on forecasts, (King 2000). So the eventual out-turn, e.g. for output and inflation, is a complex combination of the skills of the forecaster, the response of the policy-makers to those forecasts (and to their other, possibly private, sources of information), and the impact of shocks, some of which will have been unforeseen at the time of the forecast. The aim of this paper is to make a start at disentangling this mixture in the particular case of the Bank of England, and thereby to seek to assess the skills of the forecasters, the adequacy of the response of the monetary authorities, and the time path of disturbances to the auto-regressive structure of the economy.

Suggested Citation

  • Goodhart, Charles, 2005. "An essay on the interactions between the Bank of England's forecasts, the MPC's policy adjustments, and the eventual outcome," LSE Research Online Documents on Economics 24665, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24665
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    More about this item

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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