The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper estimates the effects of monetary policy on the UK economy based on a new, extensive real-time forecast data set. Employing the Romer-Romer identification approach we first construct a new measure of monetary policy innovations for the UK economy. We find that a one percentage point increase in the policy rate reduces output by up to 0.6 per cent and inflation by up to 1.0 percentage point after two to three years. Our approach resolves the price puzzle for the UK and we show that forecasts are crucial for this result. Finally, we show that the response of policy after the initial innovation is crucial for interpreting estimates of the effect of monetary policy. We can then reconcile differences across empirical specifications, with the wider VAR literature and between our UK results and the larger narrative estimates for the US. Terms of use: Documents in EconStor mayJEL: E31, E32, E52, E58.

The Transmission of Monetary Policy under the Microscope

“…However, only the coefficient on the lagged policy rate is statistically different from zero. The estimates and R 2 of around 0.3 are consistent with the findings of Romer and Romer (2004) and Cloyne and Huertgen (2016). The estimated coefficients associated with the exchange rate turn out to be not statistically significant, even though their positive signs imply that monetary policy tightens if the currency is weak before the meeting.…”

“…Fourth, we test whether the monthly shock series is predictable based on past data. Similar to Coibion (2012) and Cloyne and Huertgen (2016), we use lagged monthly changes of the unemployment rate, percentage changes in industrial production, and consumer price inflation as predictors. We find no evidence of predictability (see Table A.4 in Appendix A.4).…”

“…First, we use forecasts published in the same month of the meeting or in the previous month when possible. Second, for all remaining meetings, we follow Cloyne and Huertgen (2016) in using forecasts by market participants to proxy for the forecasts of the central bank. More precisely, we use data from Consensus Economics, a survey of forecasters from several key private and public-sector institutions, and we resort to the mean of those projections.…”

Shock of Monetary Policy Transmission and Macroeconomic Variable in Indonesia: A Structural VAR Approach

“…Oleh karena itu diperlukan informasi saat ini dan masa lalu. Ketiga, setiap kebijakan moneter selalu mendasarkan pada data real time (yang tersedia pada saat itu) bukan data ex-post (revisi) yang sering digunakan dalam studi empiris (Cloyne et al, 2014). Sedangkan efektivitas transmisi kebijakan moneter bergantung pada kemampuan pembuat kebijakan untuk membuat penilaian yang akurat terhadap dampak dari kebijakan moneter dalam menjaga stabilitas harga dan aktivitas ekonomi (Vinayagathasan, 2013).…”

A Trendy Approach to UK Inflation Dynamics

“…Data for breakevens at shorter maturity are unfortunately not available for all periods.18 This variable was also used inCloyne and Hürtgen (2016) in an analysis of UK monetary policy shocks.19 Following the New Keynesian literature, we also experimented with the change in the labour share, but this lacked empirical significance in all of the specifications we estimated.20 The underlying credit spreads series are taken from the 'three centuries of data' dataset available on the Bank's website, originally used inHills et al (2010).21 This variable is discussed in more detail inBurgess et al (2013).22 Throughout this paper we use estimated error variance-covariance matrices that are robust to heteroscedasticity and serial correlation.Discussion Paper No. 49 June 2017…”