Monetary policy reaction functions are estimated for the UK over three periods -1985-90, 1992-97 and 1997-2003 -in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument-independence in 1997. The external factors considered include US as well as German interest rates, and this leads to the identification of 'domestic' and 'international' models of the reaction function. The results suggest that it is the changes in the institutional arrangements rather than those in the targeting regime which have been decisive in the development of policy in this period. JEL Classification numbers: E52, E58, F41. OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 67, 4 (2005) 0305-9049 497The authors are grateful for comments to Larry Ball, participants in a seminar at the Bank of England and at the 2001 MMF annual conference, and three anonymous referees, but none of these carry any responsibility for the errors that remain.
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