Title: Monetary policy regime shifts and inflation persistence in the UK
Authors: Shayan Zakipour-Saber - Queen Mary University (United Kingdom) [presenting]
Abstract: Two monetary policy regimes in the United Kingdom between 1960-2009 are identified by estimating an open economy general equilibrium model in which parameters of a Taylor-type policy rule and volatilities of structural economic shocks follow independent Markov processes (MS-DSGE). Both regimes actively respond to movements in inflation, by adjusting the nominal interest rate more than one-for-one. One regime is significantly more active and is shown to be in place at the beginning of the 1960s and after 1992, which coincides with the period when the Bank of England explicitly adopted a policy of inflation targeting. Inflation persistence is measured as the fraction of the total variation of inflation from a constant target that is due to past shocks. We find a small but significant decrease in the inflation persistence of monetary policy regimes that respond more actively to inflation.