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Non-linear inflationary dynamics: evidence from the UK

Arghyrou, Michael Georgiou, Martin, C. and Milas, C. 2005. Non-linear inflationary dynamics: evidence from the UK. Oxford Economic Papers 57 (1) , pp. 51-69. 10.1093/oep/gpi004

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Abstract

This paper estimates a variety of models of inflation using quarterly data for the UK between 1965 and 2001. We find that the persistence of inflation is nonlinear since inflation adjusts more rapidly when prices are further from the steady state and when prices are above the steady state. We find that models that assume a uniform speed of adjustment are unreliable in periods of macroeconomic stress, when inflation adjusts more rapidly. Our findings suggest a need for a more sophisticated analysis of optimal monetary policy that allows for variations in the persistence of inflation and highlight the dangers of policymakers not using the best available model of inflation.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
ISSN: 14643812
Last Modified: 04 Jun 2017 01:46
URI: http://orca.cf.ac.uk/id/eprint/2517

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