A Trendy Approach to UK Inflation Dynamics

Kristin Forbes, Lewis Kirkham and Konstantinos Theodoridis

No 12652, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper uses a “trendy†approach to understand UK inflation dynamics. It focuses on the time series to isolate a low-frequency and slow moving component of inflation (the trend) from deviations around this trend. We find that this slow-moving trend explains a substantial share of UK inflation dynamics. International prices are significantly correlated with the short-term cyclical movements in inflation around its trend, and the exchange rate is significantly correlated with movements in the slow-moving, persistent trend. Other variables emphasized in standard inflation models—such as slack and inflation expectations—may also play some role, but their significance varies and the magnitude of their effects is substantially smaller than for commodity prices and the exchange rate. These results highlight the sensitivity of UK inflation dynamics to events in the rest of the world. They also provide guidance on when deviations of inflation from target are more likely to be temporary, and when (and how quickly) a monetary policy response is appropriate.

Keywords: Phillips curve; Uk; inflation; Ucsv; exchange rate; Slack; Inflation expectations; Monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E5 (search for similar items in EconPapers)
Date: 2018-01
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 (3)

Downloads: (external link)
https://cepr.org/publications/DP12652 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: A Trendy Approach to UK Inflation Dynamics (2021)
Working Paper: A trendy approach to UK inflation dynamics (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12652

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12652

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().