By Alison Stuart of the Bank’s Monetary Assessment and Strategy Division.
This article describes two simple rules, the McCallum rule and the Taylor rule, that could in principle be used to guide monetary policy. It then applies the rules to past UK data. In the United Kingdom, monetary policy decisions are based on a thorough assessment of the prospects for inflation rather than on one simple rule or single indicator. But simple rules can have a useful complementary role alongside all the other information within a pragmatic approach to monetary policy.