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UK Inflation in the 1970s and 1980s: The Role of Output Gap Mismeasurement

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Listed author(s):
  • Nelson, Edward
  • Nikolov, Kalin

Abstract

Understanding the degree of measurement error in the estimates of the output gap available to policymakers in ‘real time’ is important both for the formulation of monetary policy and for the study of inflation behaviour. For the United Kingdom, no official output gap series was published for most of the period 1965–2000. An approximate series can, however, be deduced from analysis of statistical releases and policymakers’ statements. On this basis, we construct a real-time UK output gap series for 1965–2000. We find that monetary policy errors due to output gap mismeasurement contributed approximately 3.0 to 7.1 percentage points to average UK inflation in the 1970s and 0.7–5.5 percentage points to inflation in the 1980s.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2999.

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Date of creation: Oct 2001
Handle: RePEc:cpr:ceprdp:2999
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Keywords: great inflation; inflation targeting; interest rate rules; output gap; potential output; real-time data; Taylor rule; 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

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