 The historical role of energy in UK inflation and productivity with implications for price inflationJennifer Castle, David Hendry and Andrew Martinez Energy Economics, 2023, vol. 126, issue C Abstract: We model UK price and wage inflation, productivity and unemployment over a century and a half of data, selecting dynamics, relevant variables, non-linearities and location and trend shifts using indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs additional to capital and labour, and although the price inflation equation shows a small direct impact of energy prices, the substantial rise in oil and gas prices seen by mid-2022 contribute half of the increase in price inflation. We find empirical evidence for non-linear adjustments of real wages to inflation: a wage-price spiral kicks in when inflation exceeds about 6%–8% p.a. We also find an additional non-linear reaction to unemployment, consistent with involuntary unemployment. A reduction in energy availability simultaneously reduces output and exacerbates inflation. Keywords: Energy; Inflation; Location shifts; Indicator saturation estimation; Equilibrium correction (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323004450 DOI: 10.1016/j.eneco.2023.106947 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.