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Interest Rate Control in a Model of Monetary Policy[Note 1. We would like to thank Huw Pill for many ...]
Author(s) -
Dale Spencer,
Haldane Andrew G.
Publication year - 1998
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00105
Subject(s) - economics , monetary policy , interest rate , imperfect , monetary economics , money market , control (management) , aggregate demand , aggregate (composite) , monetary base , macroeconomics , keynesian economics , linguistics , philosophy , materials science , management , composite material
We extend the model of Bernanke and Blinder (‘Credit, Money, and Aggregate Demand’, American Economic Review, Papers and Proceedings (1988), pp. 435–439) to consider formally interactions between the monetary authorities and the banking sector. Monetary policy is characterized in terms of the authorities' control over prices in the base money market, rather than quantities. But those market rates directly impinging upon real activity are distinct from—although not independent of—this administered rate. Imperfect control over market interest rates obtains. An empirical illustration is given for the UK, and the model is then extended into a stochastic setting.