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Given the large amount of interaction between research on monetary policy and its practice, this paper examines whether some simple monetary policy rules that have been proposed in the academic literature, part of which has originated from within central banks, provide a reasonable characterisation of actual policy in the UK and the US. The paper finds that the simple rule that describes best actual US monetary policy is a speed limit rule with dynamics, whilst for the UK it is a forward-looking rule. The simpler dynamics in the UK's monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting.

This paper examines the relationship between cyclical output and inflation in models commonly used for monetary policy analysis. This includes models that incorporate the New Keynesian, Fuhrer-Moore and backward-looking Phillips curves. The main finding is that these models imply a strong negative relationship between inflation and output, a result that is at odds with the data. The fact that New Keynesian models yield counterfactual implications is not new; the novelty of the paper lies in the fact that the finding extends to the other variants, such as the backward-looking Phillips Curve, which have been put forward as displaying superior dynamics. Adapted from the source document.

We use quantile regressions to model monetary policy reaction functions in three small open economies: Australia, Canada and New Zealand. Focusing on Taylor‐type rules, we find evidence of asymmetric interest rate responses for all the countries considered, with monetary policy reacting more strongly to inflation when interest rates are high than when they are low. This is consistent with previous research suggesting that central bankers place more weight on positive deviations of inflation from its target than negative ones. In contrast, the interest rate response to the output gap is largely symmetric and small.