IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v52y2015icp1-16.html
   My bibliography  Save this article

Price-level uncertainty and instability in the United Kingdom

Author

Listed:
  • Cogley, Timothy
  • Sargent, Thomas J.
  • Surico, Paolo

Abstract

Was UK inflation more stable and/or less uncertain before 1914 or after 1945? We address these questions by estimating a statistical model with changing volatilities in transient and persistent components of inflation. Three conclusions emerge. First, since periods of high and low volatility occur in both eras, neither features uniformly greater stability or lower uncertainty. When comparing peaks with peaks and troughs with troughs, however, we find clear evidence that the price level was more stable before World War I. We also find some evidence for lower uncertainty at pre-1914 troughs, but its statistical significance is borderline.

Suggested Citation

  • Cogley, Timothy & Sargent, Thomas J. & Surico, Paolo, 2015. "Price-level uncertainty and instability in the United Kingdom," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 1-16.
    • Handle: RePEc:eee:dyncon:v:52:y:2015:i:c:p:1-16
    DOI: 10.1016/j.jedc.2014.11.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165188914003078
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jedc.2014.11.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Elmar Mertens, 2016. "Measuring the Level and Uncertainty of Trend Inflation," The Review of Economics and Statistics, MIT Press, vol. 98(5), pages 950-967, December.
    2. Romer, Christina, 1986. "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 1-37, February.
    3. Joshua C. C. Chan & Gary Koop & Simon M. Potter, 2013. "A New Model of Trend Inflation," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 31(1), pages 94-106, January.
    4. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
    5. David F. Hendry, 2001. "Modelling UK inflation, 1875-1991," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 255-275.
    6. Neil Shephard, 2013. "Martingale unobserved component models," Economics Series Working Papers 644, University of Oxford, Department of Economics.
    7. Romer, Christina D, 1986. "Is the Stabilization of the Postwar Economy a Figment of the Data?," American Economic Review, American Economic Association, vol. 76(3), pages 314-334, June.
    8. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, February.
    9. Peter H. Lindert & Jeffrey G. Williamson, 1983. "English Workers’Living Standards During the Industrial Revolution: A New Look," Economic History Review, Economic History Society, vol. 36(1), pages 1-25, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan Gerlach & Rebecca Stuart, 2024. "International co-movements of inflation, 1851–1913," Oxford Economic Papers, Oxford University Press, vol. 76(4), pages 997-1013.
    2. Michael Pfarrhofer, 2024. "Forecasts with Bayesian vector autoregressions under real time conditions," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(3), pages 771-801, April.
    3. Pooyan Amir‐Ahmadi & Christian Matthes & Mu‐Chun Wang, 2016. "Drifts and volatilities under measurement error: Assessing monetary policy shocks over the last century," Quantitative Economics, Econometric Society, vol. 7(2), pages 591-611, July.
    4. James H. Stock & Mark W. Watson, 2019. "Trend, Seasonal, and Sectoral Inflation in the Euro Area," Working Papers Central Bank of Chile 847, Central Bank of Chile.
    5. Gil-Alana, Luis A. & Trani, Tommaso, 2019. "The cyclical structure of the UK inflation rate: 1210–2016," Economics Letters, Elsevier, vol. 181(C), pages 182-185.
    6. James H. Stock & Mark W. Watson, 2020. "Trend, Seasonal, and Sectorial Inflation in the Euro Area," Central Banking, Analysis, and Economic Policies Book Series, in: Gonzalo Castex & Jordi Galí & Diego Saravia (ed.),Changing Inflation Dynamics,Evolving Monetary Policy, edition 1, volume 27, chapter 9, pages 317-344, Central Bank of Chile.
    7. James M. Nason & Gregor W. Smith, 2021. "UK Inflation Forecasts since the Thirteenth Century," Working Paper 1454, Economics Department, Queen's University.
    8. Njindan Iyke, Bernard, 2016. "Are Monetary Policy Disturbances Important in Ghana? Some Evidence from Agnostic Identification," MPRA Paper 70205, University Library of Munich, Germany.
    9. Hakan Berument & Ezequiel Cabezon & Richard Froyen, 2017. "A century and three-quarters of Bank Rate and long-term interest rates in the United Kingdom," International Finance, Wiley Blackwell, vol. 20(1), pages 26-47, March.
    10. James H. Stock & Mark W. Watson, 2019. "Trend, Seasonal, and Sectoral Inflation in the Euro Area," Working Papers 2019-30, Princeton University. Economics Department..

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Timothy Cogley & Thomas J. Sargent, 2014. "Measuring Price-Level Uncertainty and Instability in the U.S., 1850-2012," Working Papers 2014-33, Economic Research Institute, Bank of Korea.
    2. James M. Nason & Gregor W. Smith, 2021. "Measuring the slowly evolving trend in US inflation with professional forecasts," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(1), pages 1-17, January.
    3. Le Bihan, Hervé & Leiva-Leon, Danilo & Pacce, Matías, 2023. "Underlying inflation and asymmetric risks," Working Paper Series 2848, European Central Bank.
    4. McNeil, James, 2023. "Monetary policy and the term structure of inflation expectations with information frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    5. Dany-Knedlik, Geraldine & Holtemöller, Oliver, 2017. "Inflation dynamics during the financial crisis in Europe: Cross-sectional identification of long-run inflation expectations," IWH Discussion Papers 10/2017, Halle Institute for Economic Research (IWH).
    6. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    7. Verbrugge, Randal & Zaman, Saeed, 2023. "The hard road to a soft landing: Evidence from a (modestly) nonlinear structural model," Energy Economics, Elsevier, vol. 123(C).
    8. Yunjong Eo & Luis Uzeda & Benjamin Wong, 2023. "Understanding trend inflation through the lens of the goods and services sectors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(5), pages 751-766, August.
    9. Chan, Joshua C.C., 2013. "Moving average stochastic volatility models with application to inflation forecast," Journal of Econometrics, Elsevier, vol. 176(2), pages 162-172.
    10. Joshua C. C. Chan, 2017. "The Stochastic Volatility in Mean Model With Time-Varying Parameters: An Application to Inflation Modeling," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 35(1), pages 17-28, January.
    11. Juan Angel Garcia & Aubrey Poon, 2022. "Inflation trends in Asia: implications for central banks [Are Phillips curves useful for forecasting inflation?]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 671-700.
    12. Benjamin K. Johannsen & Elmar Mertens, 2021. "A Time‐Series Model of Interest Rates with the Effective Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 1005-1046, August.
    13. Delle Monache, Davide & Petrella, Ivan, 2017. "Adaptive models and heavy tails with an application to inflation forecasting," International Journal of Forecasting, Elsevier, vol. 33(2), pages 482-501.
    14. James H. Stock & Mark W. Watson, 2020. "Trend, Seasonal, and Sectorial Inflation in the Euro Area," Central Banking, Analysis, and Economic Policies Book Series, in: Gonzalo Castex & Jordi Galí & Diego Saravia (ed.),Changing Inflation Dynamics,Evolving Monetary Policy, edition 1, volume 27, chapter 9, pages 317-344, Central Bank of Chile.
    15. Mertens, Elmar, 2023. "Precision-based sampling for state space models that have no measurement error," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    16. Olesya Grishchenko & Sarah Mouabbi & Jean‐Paul Renne, 2019. "Measuring Inflation Anchoring and Uncertainty: A U.S. and Euro Area Comparison," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(5), pages 1053-1096, August.
    17. Elmar Mertens & James M. Nason, 2020. "Inflation and professional forecast dynamics: An evaluation of stickiness, persistence, and volatility," Quantitative Economics, Econometric Society, vol. 11(4), pages 1485-1520, November.
    18. Sohei Kaihatsu & Jouchi Nakajima, 2015. "Has Trend Inflation Shifted?: An Empirical Analysis with a Regime-Switching Model," Bank of Japan Working Paper Series 15-E-3, Bank of Japan.
    19. Kristin Forbes & Lewis Kirkham & Konstantinos Theodoridis, 2021. "A Trendy Approach to UK Inflation Dynamics," Manchester School, University of Manchester, vol. 89(S1), pages 23-75, September.
    20. James H. Stock & Mark W. Watson, 2019. "Trend, Seasonal, and Sectoral Inflation in the Euro Area," Working Papers Central Bank of Chile 847, Central Bank of Chile.

    More about this item

    Keywords

    Inflation; Price stability; Price-level uncertainty; Nonlinear state-space model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:52:y:2015:i:c:p:1-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.