RESPONSE OF FINANCIAL MARKETS TO ADJUSTMENTS IN THE BANK O.F ENGLANDS TARGET INTEREST RATE

Abstract

Our general objective is to measure the responsiveness offinancial market participants to the Bank of Englands target interest rate adjustments. Using ofji_cial Bank ofEngland interest rate data from 1975 to 1996, we find that British money market interest rate movements are positively and significantly related to the Bank of Englands target interest rate adjustments. Furthermore, the degree of response is conditional on whether its meeting dates were known in advance. We also find that British money market interest rates move in tandem with the Bank ofEnglands target interest rate adjustment prior to the adjustment., Furthermore, the Bank ofEnglands adjustments are inversely and significantly related to British equity returns, although the degree ofsensitivity ofequity returns is conditioned on the direction ofthe adjustment in target interest rates.

Keywords

• britsh market
• responsiveness of financial market
• interest rate
• equity returns
• equity return of sensitivity