UK Inflation in the 1970s and 1980s: The Role of Output Gap Mismeasurement

Edward Nelson and Kalin Nikolov

No 2999, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Understanding the degree of measurement error in the estimates of the output gap available to policymakers in ?real time? is important both for the formulation of monetary policy and for the study of inflation behaviour. For the United Kingdom, no official output gap series was published for most of the period 1965?2000. An approximate series can, however, be deduced from analysis of statistical releases and policymakers? statements. On this basis, we construct a real-time UK output gap series for 1965?2000. We find that monetary policy errors due to output gap mismeasurement contributed approximately 3.0 to 7.1 percentage points to average UK inflation in the 1970s and 0.7?5.5 percentage points to inflation in the 1980s.

Keywords: Output gap; Potential output; Great inflation; Taylor rule; Uk monetary policy; Interest rate rules; Real-time data; Inflation targeting (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2001-10
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Citations: View citations in EconPapers (21)

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Journal Article: UK inflation in the 1970s and 1980s: the role of output gap mismeasurement (2003)
Working Paper: UK inflation in the 1970s and 1980s: the role of output gap mismeasurement (2001)
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