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Report
What was the market's view of U.K. monetary policy? Estimating inflation risk and expected inflation with indexed bonds
A measure of the credibility of monetary policy is the inflation risk premium in nominal yields. This will be time varying and can be estimated by combining the information in the nominal term structure with that in the real term structure. We estimate these risk premia using a generalized CIR affine-yield model, with one factor driving the real term structure of monthly observations on two-year, five-year and ten-year UK index-linked debt and two factors driving the term structure of the corresponding nominal yields. Our estimates show that the inflation risk premium contributes on average ...
Working Paper
The U.K.'s rocky road to stability
This paper provides an overview, using extensive documentary material, of developments in U.K. macroeconomic policy in the last half-century. Rather than focusing on well-known recent changes in policy arrangements (such as the introduction of inflation targeting in 1992 or central bank independence in 1997), we instead take a longer perspective, which characterizes the favorable economic performance in the 1990s and 2000s as the culmination of an overhaul of macroeconomic policy since the late 1970s. We stress that policymaking in recent decades has discarded various misconceptions about the ...
Working Paper
An admissible monetary aggregate for the United Kingdom
Working Paper
The term structure of inflation compensation in the nominal yield curve
We propose a DSGE model with regime switching in the central bank?s inflation target to explain inflation compensation in the UK. Taking advantage of the well-documented change in UK monetary policy to adopt inflation targeting, we estimate our model using nominal and inflation-linked Treasury bond data from the UK from 1985 to 2007. We find that this model can account for the term structure of inflation compensation in the nominal yield curve by generating regime-dependent conditional expectations of future inflation.
Conference Paper
Monetary policy rules for an open economy
The most popular simple rule for the interest rate, due to Taylor (1993a) is meant to inform monetary policy in economies that are closed. On the other hand, its main open economy alternative, i.e. Ball's (1999) rule based on a Monetary Conditions Index (MCI), may perform poorly in the face of specific types of exchange rate shocks and thus cannot offer guidance for the day-to-day conduct of monetary policy. In this paper we specify and evaluate a comprehensive set of simple monetary policy rules that are suitable for small open economies in general, and for the United Kingdom in particular. ...
Conference Paper
The demand for liquid assets in Germany and the United Kingdom
Journal Article
Monetary policy without reserve requirements : case studies and options for the United States
Over the past decade, the level of required balances held by depository institutions in the United States has declined dramatically. The decline in reserve balances has fueled a debate over the role of reserve requirements. On the one hand, proponents of reserve requirements argue that low reserve balances may complicate monetary policy operations and increase short-term interest rate volatility. On the other hand, critics of reserve requirements argue that lower reserve requirements remove a distortionary tax on depository institutions and need not complicate monetary policy operations. ; In ...
Conference Paper
Monetary transmission channels in major foreign industrial countries
Journal Article
Inflation targeting: lessons from four countries
In recent years, a number of central banks have chosen to orient their monetary policy toward the achievement of numerical inflation targets. This study examines the experience of the first three countries to adopt an inflation-targeting strategy--New Zealand, Canada, and the United Kingdom. It also considers the German experience with a monetary targeting scheme that incorporated many elements of inflation targeting even earlier. The authors find that the countries adopting a numerical inflation target have successfully maintained low inflation rates. Other benefits of inflation targeting ...
Journal Article
The Bank of England's monetary policy
As the second oldest and perhaps the most renowned central bank, the Bank of England could provide some important insights into issues that may confront the Federal Reserve System in the future.