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Modelling Relative Price Variability and Aggregate Inflation in the United Kingdom

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  • Mizon, Grayham E

Abstract

The relationship between relative price variability and aggregate inflation in the United Kingdom is used to illustrate a number of issues in econometric modeling methodology. The rigorous evaluation of models, especially testing for congruence and encompassing, is emphasized. The valuable role of recursive estimation methods in assessing model adequacy is demonstrated. Attention is drawn to the potential limitations of single-equation and univariate analysis of time-series data, and a recently proposed modeling strategy for analyzing nonstationary variables with cointegrating relationship, based on sequential reductions of a congruent VAR, is applied to a small system involving inflation and relative price variability. Copyright 1991 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 93 (1991)
Issue (Month): 2 ()
Pages: 189-211

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Handle: RePEc:bla:scandj:v:93:y:1991:i:2:p:189-211

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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  1. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
  2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  3. Spanos, Aris, 1989. "On Rereading Haavelmo: A Retrospective View of Econometric Modeling," Econometric Theory, Cambridge University Press, vol. 5(03), pages 405-429, December.
  4. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Hendry, David F, 1985. "Monetary Economic Myth and Econometric Reality," Oxford Review of Economic Policy, Oxford University Press, vol. 1(1), pages 72-84, Spring.
  7. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
  8. Pagan, A R & Hall, A D & Trivedi, P K, 1983. "Assessing the Variability of Inflation," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 585-96, October.
  9. Sargan, John Denis & Bhargava, Alok, 1983. "Testing Residuals from Least Squares Regression for Being Generated by the Gaussian Random Walk," Econometrica, Econometric Society, vol. 51(1), pages 153-74, January.
  10. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
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Cited by:
  1. Bill Russell, 2002. "The Long Run Relationships among Price Variability, Inflation and the Markup," Dundee Discussion Papers in Economics 127, Economic Studies, University of Dundee.
  2. Banerjee, Anindya & Mizen, Paul & Russell, Bill, 2007. "Inflation, relative price variability and the markup: Evidence from the United States and the United Kingdom," Economic Modelling, Elsevier, vol. 24(1), pages 82-100, January.
  3. Podivinsky, Jan M., 1998. "Testing misspecified cointegrating relationships," Economics Letters, Elsevier, vol. 60(1), pages 1-9, July.
  4. Samantha Johnson, 1993. "The costs of inflation revisited," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 56, March.

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