Interest Rate Setting and Inflation Targeting: Evidence of a Nonlinear Taylor Rule for the United Kingdom
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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.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Interest Rate Setting and Inflation Targeting: Evidence of a Nonlinear Taylor Rule for the United Kingdom
- Measuring the Interaction of Wage and Price Phillips Curves for the U.S. Economy
- A Switching ARCH Model for the German DAX Index
- Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts
- Issues of Aggregation Over Time of Conditional Heteroscedastic Volatility Models: What Kind of Diffusion Do We Recover?
- The Behavior of Short-Term Interest Rates: International Evidence of Non-Linear Adjustment
- Bayesian Analysis of Structural Effects in an Ordered Equation System
Articles in the same Issue
- Article
- Interest Rate Setting and Inflation Targeting: Evidence of a Nonlinear Taylor Rule for the United Kingdom
- Measuring the Interaction of Wage and Price Phillips Curves for the U.S. Economy
- A Switching ARCH Model for the German DAX Index
- Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts
- Issues of Aggregation Over Time of Conditional Heteroscedastic Volatility Models: What Kind of Diffusion Do We Recover?
- The Behavior of Short-Term Interest Rates: International Evidence of Non-Linear Adjustment
- Bayesian Analysis of Structural Effects in an Ordered Equation System
