In this paper we discuss whether or not historical data indicates that the interest-rate is useful for predicting future economic activity. Consequently, we are seeking to understand, through in-sample and out-of-sample analysis, whether monetary policy has been effective. We use methodology from older, reputable papers such as Bernanke, B.S (1990), who also used bivariate analysis, and apply these methods to a more recent dataset. We took necessary steps to ensure our results were robust, and we drew our conclusions carefully. Our results from the VAR models were in-line with expectations, the multi-variate model which included the interest rate consistently out-performed the bivariate model, and the multi-variate granger causality analysis produced some interesting, understandable findings. Once we concluded that there is information content in the interest-rate, we then move on to discuss monetary policy recommendations for the UK with the backing of our findings and the literature.
