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Non-linear inflationary dynamics: evidence from the UK


Reference:

Arghyrou, M., Martin, C. and Milas, C., 2004. Non-linear inflationary dynamics: evidence from the UK. Oxford Economic Papers, 57 (1), pp. 51-69.

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Official URL:

http://dx.doi.org/10.1093/oep/gpi004

Abstract

This paper estimates a variety of models of inflation using quarterly data for the UK between 1965 and 2001. We find that the persistence of inflation is nonlinear since inflation adjusts more rapidly when prices are further from the steady state and when prices are above the steady state. We find that models that assume a uniform speed of adjustment are unreliable in periods of macroeconomic stress, when inflation adjusts more rapidly. Our findings suggest a need for a more sophisticated analysis of optimal monetary policy that allows for variations in the persistence of inflation and highlight the dangers of policymakers not using the best available model of inflation.

Details

Item Type Articles
CreatorsArghyrou, M., Martin, C. and Milas, C.
DOI10.1093/oep/gpi004
DepartmentsFaculty of Humanities & Social Sciences > Social & Policy Sciences
Faculty of Humanities & Social Sciences > Economics
RefereedYes
StatusPublished
ID Code12380
Additional InformationID number: doi:10.1093/oep/gpi004

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