Modelling Relative Price Variability and Aggregate Inflation in the United Kingdom
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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Volume (Year): 93 (1991)
Issue (Month): 2 ()
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