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

Roger Kelly ()
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Roger Kelly: Monetary Policy Committee Unit, Bank of England, Postal: Bank of England, Threadneedle Street, London

No 24, Discussion Papers from 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.

Keywords: inflation; expectations (search for similar items in EconPapers)
JEL-codes: D84 E31 E58 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2008-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:mpc:wpaper:0024

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