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

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  • Nelson, Edward

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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Bibliographic Info

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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Keywords: great inflation; taylor rule; transmission mechanism; UK Monetary policy;

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References

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Citations

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Cited by:
  1. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti & Srinivasan, Naveen, 2008. "Can the Facts of UK Inflation Persistence be Explained by Nominal Rigidity?," CEPR Discussion Papers 6834, C.E.P.R. Discussion Papers.
  2. Edward Nelson, 2005. "The Great Inflation of the Seventies: What Really Happened?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 3.
  3. Antonio, Paradiso & Kumar, Saten & Rao, B Bhaskara, 2011. "A New Keynesian IS Curve for Australia: Is it Forward Looking or Backward Looking?," MPRA Paper 35296, University Library of Munich, Germany.
  4. Batini, Nicoletta & Nelson, Edward, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," International Finance, Wiley Blackwell, vol. 4(3), pages 381-400, Winter.
  5. Edward Nelson, 2007. "An overhaul of doctrine: the underpinning of U.K. inflation targeting," Working Papers 2007-026, Federal Reserve Bank of St. Louis.
  6. Carmine Trecroci & Matilde Vassalli, 2010. "Monetary Policy Regime Shifts: New Evidence From Time-Varying Interest Rate Rules," Economic Inquiry, Western Economic Association International, vol. 48(4), pages 933-950, October.
  7. Edward Nelson & Kalin Nikolov, 2002. "Monetary policy and stagflation in the UK," Bank of England working papers 155, Bank of England.
  8. 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.
  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.
  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.
  11. Goodhart, Charles A. E. & Hofmann, Boris, 2003. "FCIs and economic activity: Some international evidence," ZEI Working Papers B 14-2003, ZEI - Center for European Integration Studies, University of Bonn.
  12. 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.

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