The effect of base rate change announcement on interest rates

Abstract

The determination of interest rates is empirically investigated for the UK economy. Particular
attention is given to the institutional framework in the conduct of monetary policy. Specifically, we have
reviewed the Bank of England's operations in the money markets and its indigenous peculiarities such as
the presence of the discount houses. The institutional arrangements ensure that the discount rate changes
have a powerful influence on interest rates, contrary to the tradition whereby the money supply and
demand are the main mechanisms for determining interest rates.