Inflation Targeting in the United Kingdom

Inhaltsverzeichnis (Table of Contents)

• 1 Abstract
• 2 Modelling Inflation Targeting
  • 2.1 Introduction
  • 2.2 Monetary Policy
    • 2.2.1 Monetary Policy Strategies in Theory
    • 2.2.2 Monetary Stability as an Aim of Monetary Policy
    • 2.2.3 Empirical Monetary Strategies
    • 2.2.4 Monetary Transmission Mechanisms
  • 2.3 Inflation Targeting as Monetary Policy Strategy
    • 2.3.1 Characterisation
    • 2.3.2 The Origins
    • 2.3.3 On Transparency
    • 2.3.4 Form of the Target and the Policy Horizon
    • 2.3.5 Asset Price Bubbles and Rapid Expansion of Credit
    • 2.3.6 Critical Discussion
  • 2.4 The Instrument Rule Model
    • 2.4.1 Modelling Inflation Targeting
    • 2.4.2 Kydland and Prescott's Time Consistency Problem
    • 2.4.3 Barro and Gordon Introduce Reputation to the Game
    • 2.4.4 McCallum and the Monetary Base
    • 2.4.5 The Taylor Rule For Interest Rate Setting
    • 2.4.6 Asymmetric Preferences and Non-linear Taylor Rules
    • 2.4.7 Summary
  • 2.5 The Target Rule Model
    • 2.5.1 Svensson's Model in the New Keynesian Framework
    • 2.5.2 Some Aspects in Critical Discussion
    • 2.6 Summary
• 3 The Process of Inflation Targeting in the UK
  • 3.1 Some Historical Issues
    • 3.1.1 Development of the Bank of England
    • 3.1.2 Previous Monetary Policy Regimes
    • 3.1.3 Adoption of Inflation Targeting
    • 3.1.4 Operational Framework from 1992 - 1997
    • 3.1.5 Bank of England Operational Independence
    • 3.1.6 Summary
  • 3.2 Present Monetary Policy Framework at the Bank of England
    • 3.2.1 Core Purposes and Monetary Strategy
    • 3.2.2 The Bank's Publication Policy
    • 3.2.3 Forecasting Inflation at the Bank of England
  • 3.3 Bank of England Transmission Mechanism
    • 3.3.1 The Transmission Mechanism in Overview
    • 3.3.2 Interest Rate Setting Process and Quantitative Effects
    • 3.3.3 Financial Markets and Spending Behaviour
    • 3.3.4 From Changes in Spending Behaviour to GDP and Inflation
    • 3.3.5 The Role of Money
    • 3.3.6 Relationship between Inflation and Inflation Expectations
  • 3.4 Effects of Inflation Targeting in the United Kingdom
    • 3.4.1 Introduction
    • 3.4.2 Basic Economic Developments After Inflation Targeting
    • 3.4.3 Inflation Targeting and the Exchange Rate
    • 3.4.4 Empirical Evidence of a Non-linear Taylor Rule
    • 3.4.5 Efficacy and Impact on Social Welfare
    • 3.4.6 Inflation Targeting and The Household Sector After the Financial Crisis
    • 3.4.7 Expected Inflation as a Metric of Heightened Credibility
  • 3.5 Concluding Remarks
• 4 Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This diploma thesis examines the application of inflation targeting as a monetary policy strategy in the United Kingdom. The primary objective is to analyze the theoretical framework and operational implementation of inflation targeting within the context of the Bank of England. Key themes explored in this work include:

• The theoretical foundations of inflation targeting, including the evolution of monetary policy strategies and the debate between Monetarist and New Keynesian perspectives.
• The historical development of inflation targeting in the UK, encompassing the establishment of the Bank of England, previous monetary policy regimes, and the adoption of inflation targeting as a policy framework.
• The operational aspects of inflation targeting in the UK, focusing on the Bank of England's independence, forecasting practices, transmission mechanism, and publication policy.
• The economic effects of inflation targeting in the UK, evaluating its impact on inflation, exchange rates, and the overall economy.
• The potential challenges and limitations of inflation targeting, particularly in the context of financial crises and economic instability.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter 2 delves into the theoretical underpinnings of inflation targeting. It explores the evolution of monetary policy strategies, examines the concept of monetary stability, and delves into the theoretical debate between Monetarist and New Keynesian perspectives. This chapter also discusses the implementation of inflation targeting as a policy strategy, including its origins, characteristics, and potential limitations. Chapter 3 focuses on the operational framework of inflation targeting within the UK. It reviews the historical development of the Bank of England, including its operational independence, previous monetary policy regimes, and the adoption of inflation targeting. This chapter further examines the Bank of England's present monetary policy framework, its forecasting practices, and its model of the transmission mechanism. Chapter 4 analyzes the economic effects of inflation targeting in the UK. It examines the impact of inflation targeting on inflation rates, exchange rates, and the overall economy. This chapter also explores the potential challenges and limitations of inflation targeting, particularly in the context of financial crises and economic instability.

Schlüsselwörter (Keywords)

This thesis primarily focuses on the application of inflation targeting as a monetary policy strategy in the United Kingdom. Key terms and concepts include: inflation targeting, monetary policy, Bank of England, operational independence, transmission mechanism, forecasting, exchange rates, financial crises, and economic instability.