This article estimates limited dependent variable models for Bank of England monetary policy using monthly data over the period June 1997–March 2003. During this period the Bank had operational independence to set the interest rate in order to meet the inflation target set by the government....

In this paper we embed the Taylor interest rate rule in a simple macroeconomic model with Calvo contracts. We contrast this with the case in which the interest rate is determined by the conventional LM curve along with a fixed value for the monetary aggregate. We derive conditions under which...