The Tradeoff between Inflation and the Real Economy: Forward-Looking Behavior and the Inflation Premium

Erika Gulyas and Richard Startz

No UWEC-2005-25, Working Papers from University of Washington, Department of Economics

Abstract: We use the inflation premium—the difference between nominal and real interest rates—as a proxy for expected inflation in the context of the New Keynesian Phillips Curve. Using data from inflation-indexed and nominal bonds we estimate a forward-looking Phillips curve for the United Kingdom over the period 1985-2004. The proposed model describes UK inflation dynamics considerably better than does the standard hybrid New Keynesian Phillips Curve under the assumption of rational expectations. In contrast with the findings in the rest of the literature we find that there still exists a tradeoff between inflation and the stance of the real economy, regardless of the empirical measure used. This relationship also persists in the period since the UK adopted inflation targeting as a framework for monetary policy.

Date: 2005-11
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econ.washington.edu/user/startz/Working_Papers/NKPC_UK.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.econ.washington.edu/user/startz/Working_Papers/NKPC_UK.pdf [301 Moved Permanently]--> https://www.econ.washington.edu/user/startz/Working_Papers/NKPC_UK.pdf [302 Found]--> https://econ.washington.edu/user/startz/Working_Papers/NKPC_UK.pdf)

Related works:
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:udb:wpaper:uwec-2005-25

Access Statistics for this paper

More papers in Working Papers from University of Washington, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Michael Goldblatt ().