In this paper, we investigate the interest rate setting behaviour of the Bank of England (BoE) over the 16 year period covering both the Great Moderation and the 2008−9 Global Financial Crisis and Great Recession. We contribute to the literature by using the BoE’s own inflation projections in our estimations. Also, we develop a novel measure of the output gap to encapsulate the array of real variables that the Monetary Policy Committee of the BoE reviews. In order to assess the BoE’s responsiveness to financial markets, we estimate a new financial conditions index that covers a wide range of financial indicators that feature in the Inflation Report. Our study provides some new insights into the BoE’s monetary policy behaviour. We show that the BoE was concerned not only with price stability but also output, employment and financial conditions during the Great Moderation. In contrast to previous studies, we find that the BoE responds relatively less to financial conditions and relatively more to inflation projections when the 2008−9 Global Financial Crisis and Great Recession period is included.

This study assesses whether the widely documented momentum profits can be attributed to time-varying risk as described by a GJR-GARCH(1,1)-M model. We reveal that momentum profits are a compensation for time-varying unsystematic risks, which are common to the winner and loser stocks but affect the former more than the latter. In addition, we find that, perhaps because losers have a higher propensity than winners to disclose bad news, negative return shocks increase their volatility more than they increase those of the winners. The volatility of the losers is also found to respond to news more slowly, but eventually to a greater extent, than that of the winners.