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Non-linear Inflationary Dynamics: Evidence from the UK

Michael Arghyrou (), Christopher Martin () and Costas Milas ()

Public Policy Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: This paper estimates a variety of models of inflation using quarterly data for the UK between 1965 and 2001. We find strong evidence that the persistence of inflation is nonlinear and that inflation adjusted more rapidly in periods of macroeconomic stress such as the mid-1970s, the early 1980s and the late 1980s-early 1990s. Our results imply that inflation will respond more strongly and more rapidly to changes in interest rates when the price level is further away from the steady state level. This has implications for optimal monetary policy.

Pages: 29 pages
Date: 2003-02
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Journal Article: Non-linear inflationary dynamics: evidence from the UK (2005) Downloads
Working Paper: Non-linear Inflationary Dynamics: Evidence from the UK (2003) Downloads
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