Some Reflections on the Bank of England's Monetary Policy Committee

Wadhwani, Sushil B.
October 2001
Business Economics;Oct2001, Vol. 36 Issue 4, p60
Academic Journal
The new monetary policy framework in the UK has made an encouraging start, as inflation expectations have fallen to around target. This does not appear to have come at the cost of growth, as the unemployment rate has continued to fall, and output growth has been slightly above its average rate. A critical feature of our framework is that it specifies a symmetric target. If we persistently undershoot the target, it could eventually damage our credibility. Therefore, it will remain important to respond to the possible changes in the structural relationships that underlie our forecasting processes. While UK monetary policy is more transparent than in many other countries, our interest rate decisions appear to have surprised the markets more than those of other central banks. However, these empirical results may be distorted, because, in the early years of the Monetary Policy Committee, the markets were trying to learn how we would react to developments in the economy. Over a more recent period, the average market surprise associated with our decisions is broadly in line with other major central banks.


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