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Comparative Properties of Models of the UK Economy

Published online by Cambridge University Press:  26 March 2020

Keith B. Church ,
Peter R. Mitchell ,
Joanne E. Sault  and
Kenneth F. Wallis
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Abstract

This article analyses the properties of five leading macroeconometric models of the UK economy, in the light of the current discussion of monetary and fiscal policy-making. In simulation experiments, the interest rate and the basic rate of income tax are used to target the inflation rate and to ensure fiscal solvency. Our results show that monetary shocks soon affect the response of quantity variables, and fiscal shocks have monetary consequences, thus the operation of monetary and fiscal policy cannot be separated. Although the Bank of England's view is that it takes two years for monetary policy to have its maximum effect on inflation, our results show that this depends on the approach taken to the modelling of expectations.

Type
Articles
Information
National Institute Economic Review , Volume 161 , July 1997 , pp. 91 - 110
Copyright
Copyright © 1997 National Institute of Economic and Social Research

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Footnotes

∗

This article continues the series of surveys published in the National Institute Economic Review by the ESRC Macroeconomic Modelling Bureau at the University of Warwick. Editorial responsibility is taken by the authors, not by the Editorial Board of the Review.

References

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