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Can the Fiscal Theory of the price level explain UK inflation in the 1970s?

  • Fan, Jingwen

    ()

    (Cardiff Business School)

  • Minford, Patrick

    ()

    (Cardiff Business School)

We investigate whether the Fiscal Theory of the Price Level can explain UK inflation in the 1970s. We find that fiscal policy was non-Ricardian and money growth entirely endogenous in this period. The implied model of inflation is tested in two ways: for its trend using cointegration analysis and for its dynamics using the method of indirect inference. We find that it is not rejected. We also find that the model's errors indicate omitted dynamics which merit further research.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2009/26.

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Length: 28 pages
Date of creation: Nov 2009
Date of revision: Mar 2011
Handle: RePEc:cdf:wpaper:2009/26
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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers

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