TITLE

Non--linear inflationary dynamics: evidence from the UK

AUTHOR(S)
Arghyrou, Michael; Martin, Christopher; Milas, Costas
PUB. DATE
January 2005
SOURCE
Oxford Economic Papers;Jan2005, Vol. 57 Issue 1, p51
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
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.
ACCESSION #
16315603

 

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