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What Does the UK's Monetary Policy and Inflation Experience Tell Us About the Transmission Mechanism?

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Author Info
Nelson, Edward

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Abstract

This Paper provides a discussion of some aspects of aggregate supply and demand determination in the United Kingdom. It argues that: (1) UK policymakers in the 1960s and 1970s did not use the downward-sloping Phillips curve as a model of inflation or a guide to policy. The explanation proposed by Sargent (1999) for the US Great Inflation is therefore unlikely to account for the Great Inflation in the UK. (2) The proposition that inflation is a monetary phenomenon is fully consistent with the use of models in which money and other measures of monetary policy stance do not appear in the price-setting equations. (3) The UK exhibits a relationship between output and short-term real interest rates that is quite distinct from that observed in the US.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3047.

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Date of creation: Nov 2001
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Handle: RePEc:cpr:ceprdp:3047

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Related research
Keywords: great inflation; taylor rule; transmission mechanism; 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

References listed on IDEAS
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  31. Rudebusch, Glenn D & Svensson, Lars E O, 2000. "Eurosystem Monetary Targeting: Lessons from US Data," CEPR Discussion Papers 2522, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(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. Edward Nelson, 2007. "An overhaul of doctrine: the underpinning of U.K. inflation targeting," Working Papers 2007-026, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Nicoletta Batini & Edward Nelson, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," Discussion Papers 06, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
    Other versions:
  3. Tödter, Karl-Heinz, 2002. "Monetary indicators and policy rules in the P-star model," Discussion Paper Series 1: Economic Studies 2002,18, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Nelson, Edward & Nikolov, Kalin, 2002. "Monetary Policy and Stagflation in the UK," CEPR Discussion Papers 3458, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Edward Nelson, 2004. "The Great Inflation of the seventies: what really happened?," Working Papers 2004-001, Federal Reserve Bank of St. Louis. [Downloadable!]
  6. Carmine Trecroci & Matilde Vassalli, 2006. "Monetary policy regime shifts: new evidence from time-varying interest rate rules," Working Papers 0602, University of Brescia, Department of Economics. [Downloadable!]
  7. Pablo García S. & Rodrigo Valdés P, 2003. "Dinero e Inflación en el Marco de Metas de Inflación," Working Papers Central Bank of Chile 198, Central Bank of Chile. [Downloadable!]
  8. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti & Srinivasan, Naveen, 2008. "Can the Facts of UK Inflation Persistence be Explained by Nominal Rigidity?," Cardiff Economics Working Papers E2008/7, Cardiff University, Cardiff Business School, Economics Section, revised Dec 2008. [Downloadable!]
    Other versions:
  9. Robert L. Hetzel, 2008. "What is the monetary standard, or, how did the Volcker-Greenspan FOMCs tame inflation?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 147-171. [Downloadable!]
  10. David Meenagh & Patrick Minford & Eric Nowell & Prakriti Sofat & Naveen Srinivasan, 2007. "Are the facts of UK inflation persistence to be explained by nominal rigidity or changes in monetary regime?," WEF Working Papers 0028, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
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