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| Author: | Arghyrou, M. Martin, C. Milas, C. |
| Title: | Non-linear inflationary dynamics: evidence from the UK |
| Journal: | Oxford Economic Papers
2005 : JAN, VOL. 57:1, p. 51-69 |
| Index terms: | Monetary policy Inflation Models United Kingdom |
| Language: | eng |
| Abstract: | This paper estimates a variety of models of inflation (henceforth as: infl.)using quarterly data for the U.K. from 1965 to 2001. It is found that the persistence of infl. is non-linear since infl. adjusts more rapidly when prices are further from the steady state (here as: st-st.) and when prices are above the st-st. Models that assume a uniform speed of adjustment are found to be unreliable in periods of macroeconomic stress, when infl. adjusts more rapidly. The findings suggest a need for a more sophisticated analysis of optimal monetary policy allowing for variations in the persistence of infl., highlighting the dangers of policymakers not using the best available model of inflation. |
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