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UK Inflation in the 1970s and 1980s: The Role of Output Gap Mismeasurement

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Author Info
Nelson, Edward
Nikolov, Kalin

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Abstract

Understanding the degree of measurement error in the estimates of the output gap available to policymakers in ‘real time’ is important both for the formulation of monetary policy and for the study of inflation behaviour. For the United Kingdom, no official output gap series was published for most of the period 1965–2000. An approximate series can, however, be deduced from analysis of statistical releases and policymakers’ statements. On this basis, we construct a real-time UK output gap series for 1965–2000. We find that monetary policy errors due to output gap mismeasurement contributed approximately 3.0 to 7.1 percentage points to average UK inflation in the 1970s and 0.7–5.5 percentage points to inflation in the 1980s.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2999.

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Date of creation: Oct 2001
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Handle: RePEc:cpr:ceprdp:2999

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Related research
Keywords: great inflation; inflation targeting; interest rate rules; output gap; potential output; real-time data; Taylor rule; UK monetary policy;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Orphanides, Athanasios & Williams, John C, 2005. "The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning and Expectations," CEPR Discussion Papers 4865, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Andreas Beyer & Vitor Gaspar & Christina Gerberding & Otmar Issing, 2009. "Opting out of the Great Inflation: German monetary policy after the break down of Bretton Woods," Working Paper Series 1020, European Central Bank. [Downloadable!]
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  3. Ansgar Belke & Jens Klose, 2009. "Does the ECB Rely on a Taylor Rule? - Comparing Ex-post with Real Time Data," Ruhr Economic Papers 0133, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  4. Bernoth, Kerstin & Hughes Hallett, Andrew & Lewis, John, 2008. "Did Fiscal Policy Makers Know What They Were Doing? Reassessing Fiscal Policy with Real Time Data," CEPR Discussion Papers 6758, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Julien Garnier & Bjørn-Roger Wilhelmsen, 2005. "The natural real interest rate and the output gap in the euro area: A joint estimation," Working Paper 2005/14, Norges Bank. [Downloadable!]
    Other versions:
  6. Dean Croushore, 2008. "Frontiers of real-time data analysis," Working Papers 08-4, Federal Reserve Bank of Philadelphia. [Downloadable!]
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