Working Paper No. 17
By Spencer Dale and Andrew G Haldane
We extend the model of Bernanke and Blinder (1988) to consider formally the interactions between the monetary authorities and the banking sector. Monetary policy is characterised in terms of the authorities' control over prices in the base money market, rather than quantities. Those market rates directly impinging upon real activity are, however, distinct from - although not independent of - this administered rate. Imperfect control over market interest rates obtains. An empirical illustration is given for the UK.