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The Causal Relationship between Inflation and Inflation Expectations in the United Kingdom

Author

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  • Kelly, Roger

    () (Monetary Policy Committee Unit, Bank of England)

Abstract

Two major events have affected the monetary regime in the United Kingdom in recent years, namely the introduction of inflation targeting, and the granting of operational independence to the Bank of England. In this paper we examine what impact, if any, these events have had on inflation expectations. A series of Granger causality tests are used in order to examine the causal relationship between a measure of prices and inflation expectations. We find evidence that the introduction of inflation targeting caused both the general public and professionals to anchor their expectations, rather than basing them on current RPI inflation.

Suggested Citation

  • Kelly, Roger, 2008. "The Causal Relationship between Inflation and Inflation Expectations in the United Kingdom," Discussion Papers 24, Monetary Policy Committee Unit, Bank of England.
  • Handle: RePEc:mpc:wpaper:0024
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/external-mpc-discussion-paper/2008/the-casual-relationship-between-inflation-and-inflation-expectations-in-the-uk
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    Cited by:

    1. repec:sbe:breart:v:36:y:2016:i:2:a:57454 is not listed on IDEAS
    2. Ernest Gnan & Johann Scharler & Maria Antoinette Silgoner, 2009. "Inflation Expectations – Role and Measurement for Monetary Policy," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 41-67.
    3. Reyna Vergara González & Elías Eduardo Gutiérrez Alva, 2014. "Evaluación del cumplimiento de los objetivos de inflación y el papel de las expectativas: evidencia para México, 1995-2012," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 1-32, November.
    4. Dzmitry Kruk, 2016. "SVAR Approach for Extracting Inflation Expectations Given Severe Monetary Shocks: Evidence from Belarus," BEROC Working Paper Series 39, Belarusian Economic Research and Outreach Center (BEROC).

    More about this item

    Keywords

    inflation; expectations;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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