Targets, zones, and asymmetries: a flexible nonlinear model of recent UK monetary policy

We estimate a flexible model of the behaviour of UK monetary policymakers in the era of inflation targeting based on a new representation of policymakers preferences. This enables us to address a range of issues that are beyond the scope of the existing literature. We find a complex relationship between interest rates and inflation: interest rates are passive when inflation is close to the target but there is an increasingly vigorous response as inflation deviates further from the target.