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
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
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Journal Article: Non-linear inflationary dynamics: evidence from the UK (2005)
Working Paper: Non-linear Inflationary Dynamics: Evidence from the UK (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bru:bruppp:03-03
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