Non-linear inflationary dynamics: evidence from the UK
AbstractThis paper estimates a variety of models of inflation using quarterly data for the UK between 1965 and 2001. We find that the persistence of inflation is nonlinear since inflation adjusts more rapidly when prices are further from the steady state and when prices are above the steady state. We find that models that assume a uniform speed of adjustment are unreliable in periods of macroeconomic stress, when inflation adjusts more rapidly. Our findings suggest a need for a more sophisticated analysis of optimal monetary policy that allows for variations in the persistence of inflation and highlight the dangers of policymakers not using the best available model of inflation. Copyright 2005, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 57 (2005)
Issue (Month): 1 (January)
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Other versions of this item:
- Michael Arghyrou & Christopher Martin & Costas Milas, 2003. "Non-linear Inflationary Dynamics: Evidence from the UK," Public Policy Discussion Papers 03-03, Economics and Finance Section, School of Social Sciences, Brunel University.
- Michael Arghyrou & Christopher Martin & Costas Milas, 2003. "Non-linear Inflationary Dynamics: Evidence from the UK," Economics and Finance Discussion Papers 03-03, Economics and Finance Section, School of Social Sciences, Brunel University.
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- Costas Milas, 2007.
"Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model,"
Keele Economics Research Papers
KERP 2007/07, Centre for Economic Research, Keele University.
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- Zhang, Lingxiang, 2013. "Modeling China's inflation dynamics: An MRSTAR approach," Economic Modelling, Elsevier, vol. 31(C), pages 440-446.
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