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Politics and the UK's monetary policy
Author(s) -
Chang FangShuo,
Chen ShiuSheng,
Wang PoYuan
Publication year - 2020
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12256
Subject(s) - economics , politics , taylor rule , unemployment , monetary policy , welfare , keynesian economics , macroeconomics , central bank , market economy , political science , law
This paper examines whether politics causes regime shifts in deviations from the optimal monetary policy in the United Kingdom. After using a dynamic stochastic general equilibrium model to construct the welfare‐maximizing policy rule and deviations from the optimal Taylor rule, we show that politics does indeed play an important role in explaining these deviations. In addition to politics, unemployment rates account for regime shifts in the Taylor rule deviations.