The most popular simple rule for the interest rate, due to Taylor, is meant to inform monetary policy in closed economies. On the other hand, its main open-economy alternative, Ball's rule based on a monetary conditions index (MCI), may perform poorly in the face of specific types of exchange...

The previous literature on the benefits of price level versus inflation targeting has, with some qualifications, established that price level targeting entails lower price level variance at the expense of higher inflation and output variance. This paper investigates the properties of monetary...

This paper reports an investigation of the effects of additive and multiplicative uncertainty upon the stabilisation properties of a simple base money rule for monetary policy. Using a five-equation empirical model of the United Kingdom, it is shown that changes in the extent of additive...

This paper evaluates a class of simple policy rules that feed back from expected values of future inflation--inflation forecast-based rules. The rules are assessed by how well they perform when the economy is buffeted by a combination of shocks, whose distribution is drawn from the Bank of...

This paper investigates the problem of selecting an optimal horizon for inflation targeting in the United Kingdom. There are two key ways of thinking about an optimal horizon, so the paper looks at optimal horizons for both of these interpretations. In addition, to see whether the results are...

This paper introduces the Bank of England's new forecasting platform and provides examples of how it can be applied to practical forecasting problems. The platform consists of four components: COMPASS, a structural central organising model; a suite of models, used to fill in the gaps in the...

This paper explores the effects of measurement error on dynamic forecasting models. It illustrates a trade-off that confronts forecasters and policymakers when they use data that are measured with error. On the one hand, observations on recent data give valuable clues as to the shocks that are...

We investigate the extent to which misperceptions about the economy can become self-reinforcing and thereby contribute to time-varying macroeconomic dynamics. To do so, we build a New Keynesian model with long-horizon expectations and dynamic predictor selection. Because agents solve...

The volatility of inflation and output has fallen in most advanced economies in the 1990s and 2000s. We use a monetary overlapping generations model to discuss the cause and durability of this macroeconomic change. In that model, agents' decision rules require them to make forecasts of future...

This paper outlines the properties of one of the models used at the Bank of England for analysing the impact of energy prices on the UK economy. We build a dynamic general equilibrium model that includes a variety of channels through which energy prices affect demand and supply. On the demand...