Can the Fiscal Theory of the price level explain UK inflation in the 1970s?

Jingwen Fan and A. Patrick Minford

No E2009/26, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We investigate whether the Fiscal Theory of the Price Level can explain UK inflation in the 1970s. We find that fiscal policy was non-Ricardian and money growth entirely endogenous in this period. The implied model of inflation is tested in two ways: for its trend using cointegration analysis and for its dynamics using the method of indirect inference. We find that it is not rejected. We also find that the model's errors indicate omitted dynamics which merit further research.

Keywords: UK Inflation; Fiscal Theory of the Price Level; Bootstrap simulation; Indirect inference; Wald statistic (search for similar items in EconPapers)
JEL-codes: E31 E37 E62 E65 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2009-11, Revised 2011-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Can the Fiscal Theory of the price level explain UK inflation in the 1970s? (2010)
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