EconPapers    
Economics at your fingertips  
 

Competitiveness, inflation, and monetary policy

Hashmat Khan () and Richhild Moessner

Bank of England working papers from Bank of England

Abstract: This paper examines the way in which structural changes in the level of steady-state competitiveness and the trend rate of inflation affect inflation responses to monetary policy shocks, in scenarios chosen to capture broadly the conditions of the UK economy in the early 1990s and more recently. Cyclical changes in competitiveness are also considered, since it is not clear empirically whether changes in competitiveness have been predominantly structural or cyclical. A model based on work by Woodford is used, allowing for positive trend inflation and cyclical variations in competitiveness in a tractable manner. This extension enables the separate quantification of the impact of differences in the steady-state level of and cyclical changes in competitiveness on inflation in the short term, in high and low inflation environments. The paper quantifies the extent to which procyclical (countercyclical) changes in competitiveness dampen (amplify) the impulse responses of inflation to a given monetary policy shock. In the calibration used, the inflation response to monetary policy shocks in a low inflation/high competitiveness environment is dampened compared with a high inflation/low competitiveness environment. By contrast, inflation responses to monetary policy shocks in a low inflation/low competitiveness environment are similar to those in a high inflation/high competitiveness environment.

Date: 2005-01
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP246.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP246.pdf [301 Moved Permanently]--> https://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP246.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:246

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().

 
Page updated 2025-03-30
Handle: RePEc:boe:boeewp:246