Real and Nominal UK Interest Rates, ERM Membership and Inflation Targeting
Abstract: This paper models the time-varying mean of the UK real and nominal short-term interest rate. Both rates mean revert to a time-varying central tendency in continuous-time interest rate models. Before and during British membership in the ERM, the mean of the real and nominal short rate have...| Link(s) zu Dokument(en): | IHS Publikation |
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| Format: | IHS Series NonPeerReviewed |
| Sprache: | Englisch |
| Veröffentlicht: |
Institut für Höhere Studien
2006
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| Zusammenfassung: | Abstract: This paper models the time-varying mean of the UK real and nominal short-term interest rate. Both rates mean revert to a time-varying central tendency in continuous-time interest rate models. Before and during British membership in the ERM, the mean of the real and nominal short rate have a strong negative correlation. Afterwards, when the UK implemented an inflation targeting policy, the mean of the real and nominal short rate are no longer negatively correlated, but instead have a strong positive correlation. The paper also reports empirical evidence of a relationship between the mean of the real and nominal short rate and inflation in the period before the departure from the ERM.; |
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