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Monetary policy rules in theory and in practice: evidence from the UK and the US

[journal article]

Paez-Farrell, Juan

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Abstract Given the large amount of interaction between research on monetary policy and its practice, this paper examines whether some simple monetary policy rules that have been proposed in the academic literature, part of which has originated from within central banks, provide a reasonable characterisation of actual policy in the UK and the US. The paper finds that the simple rule that describes best actual US monetary policy is a speed limit rule with dynamics, whilst for the UK it is a forward-looking rule. The simpler dynamics in the UK's monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting.
Keywords monetary policy; Great Britain; United States of America
Classification Economic Policy
Free Keywords Monetary policy; interest rate rule; Regelgebundene Politik; Taylor-Regel; Inflation Targeting
Document language English
Publication Year 2009
Page/Pages p. 2037-2046
Journal Applied Economics, 41 (2009) 16
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)