EconPapers    
Economics at your fingertips  
 

The Historical Role of Energy in UK Inflation and Productivity and Implications for Price Inflation in 2022

Jennifer Castle (), David Hendry () and Andrew Martinez ()

No 2022-001, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: We model UK price and wage inflation, productivity and unemployment over a century and a half of data, selecting dynamics, relevant variables, non-linearities and location and trend shifts using indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs additional to capital and labour, and although the price inflation equation shows a small direct impact of energy prices, the substantial rise in oil and gas prices seen by mid-2022 contribute half of the increase in price inflation. We find empirical evidence for non-linear adjustments of real wages to inflation: a wage-price spiral kicks in when inflation exceeds about 6–8% p.a. We also find an additional non-linear reaction to unemployment, consistent with involuntary unemployment. A reduction in energy availability simultaneously reduces output and exacerbates inflation.

Keywords: Energy; Inflation; Location Shifts; Indicator Saturation Estimation; Equilibrium Correction. (search for similar items in EconPapers)
JEL-codes: C22 C51 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2022-09
New Economics Papers: this item is included in nep-ene, nep-his and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www2.gwu.edu/~forcpgm/2022-001.pdf First version, 2022 (application/pdf)

Related works:
Working Paper: The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 (2022) Downloads
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:gwc:wpaper:2022-001

Access Statistics for this paper

More papers in Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting Contact information at EDIRC.
Bibliographic data for series maintained by GW Economics Department ().

 
Page updated 2023-01-27
Handle: RePEc:gwc:wpaper:2022-001