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Evolving UK and US macroeconomic dynamics through the lens of a model of deterministic structural change

Author

Listed:
  • George Kapetanios

    (Queen Mary and Westfield College and Bank of England)

  • Tony Yates

    (Bank of England)

Abstract

Using a model of deterministic structural change, we revisit several topics in inflation dynamics explored previously using stochastic, time-varying parameter models. We document significant reductions in inflation persistence and predictability. We estimate that changes in the volatility of shocks were decisive in accounting for the great moderations of the United States and the United Kingdom. We also show that the magnitude and the persistence of the response of inflation and output to monetary policy shocks has fallen in these two countries. These findings should be of interest in those seeking to resolve theoretical debates about the sources of apparent nominal and real frictions in the macroeconomy, and the causes of the Great Moderation.

Suggested Citation

  • George Kapetanios & Tony Yates, 2011. "Evolving UK and US macroeconomic dynamics through the lens of a model of deterministic structural change," Bank of England working papers 434, Bank of England.
    • Handle: RePEc:boe:boeewp:0434
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    References listed on IDEAS

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    Cited by:

    1. Fu, Zhonghao & Hong, Yongmiao & Su, Liangjun & Wang, Xia, 2023. "Specification tests for time-varying coefficient models," Journal of Econometrics, Elsevier, vol. 235(2), pages 720-744.
    2. Liudas Giraitis & George Kapetanios & Konstantinos Theodoridis & Tony Yates, 2014. "Estimating time-varying DSGE models using minimum distance methods," Bank of England working papers 507, Bank of England.
    3. Giraitis, Liudas & Kapetanios, George & Theodoridis, Konstantinos & Yates, Tony, 2014. "Estimating time-varying DSGE models using minimum distance methods," Bank of England working papers 507, Bank of England.

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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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