The effect of changes in official UK rates on market interest rates since 1987

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 April 1993

Working Paper No. 10
By Spencer Dale

It is widely accepted a central bank, such as the Bank of England, has the ability to control short-term interest rates. Moreover, a number of studies have documented the very close relationship between Bank administered rates and their market analogues. What has not been investigated, however, is the influence of official rates - stemming from the markets' expectations about the future path of rates - over interest rates more generally. This influence is analysed by considering the response of market interest rates to the thirty policy changes, as signalled by movements in official rates, since 1987.

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