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Oxford Economic Papers Advance Access published online on March 5, 2008
Oxford Economic Papers, doi:10.1093/oep/gpn008
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© Oxford University Press 2008 All rights reserved

Targets, zones, and asymmetries: a flexible nonlinear model of recent UK monetary policy

Virginie Boinet* and Christopher Martin{dagger}

*Brunel University
{dagger}Department of Economics and Finance, Brunel University, Uxbridge, Middlesex UB8 3PH; e-mail: christopher.martin{at}brunel.ac.uk

JEL classifications: C51, C52, E52, E58


  Abstract

We estimate a flexible model of the behaviour of UK monetary policymakers in the era of inflation targeting based on a new representation of policymaker's preferences. This enables us to address a range of issues that are beyond the scope of the existing literature. We find a complex relationship between interest rates and inflation: interest rates are passive when inflation is close to the target but there is an increasingly vigorous response as inflation deviates further from the target.


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