In this paper we investigate whether inflation causes the time-varying mean-reverting level in the Balduzzi et al. (Review of Economics and Statistics, Vol. 80, No. 1 (1998), pp. 62–72) short rate model. We find a time-varying mean-reverting level for the UK nominal short rate, but the real short rate mean reverts to a constant. This suggests a monetary source for the time-varying mean-reverting level in nominal short rate models. The time-varying mean factor is closely related to market expectations about future inflation. This suggests that expected future inflation determines the mean-reverting level of the nominal short rate.