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Modelling UK Inflation: Persistence, Seasonality and Monetary Policy

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  • D R Osborn
  • M Sensier

Abstract

This paper studies monthly RPIX inflation in the UK in the context of the change to inflation targeting in 1992. Our empirical models take account of the strong and changing seasonal pattern of inflation, while also focusing on inflation persistence and Phillips curve explanations. In both univariate and Phillips curve models, we find strong evidence of a change in parameters around the end of 1992, at the time of the introduction of inflation targeting. All models point to a substantial decline in inflation persistence after this date.

Suggested Citation

  • D R Osborn & M Sensier, 2004. "Modelling UK Inflation: Persistence, Seasonality and Monetary Policy," Centre for Growth and Business Cycle Research Discussion Paper Series 46, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:46
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr46.pdf
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    Cited by:

    1. Costas Milas, 2009. "Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 168-182, January.
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    3. Halunga, Andreea G. & Osborn, Denise R. & Sensier, Marianne, 2009. "Changes in the order of integration of US and UK inflation," Economics Letters, Elsevier, vol. 102(1), pages 30-32, January.
    4. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, October.
    5. Pham The Anh, 2007. "Nominal Rigidities and The Real Effects of Monetary Policy in a Structural VAR Model," Working Papers 06, Development and Policies Research Center (DEPOCEN), Vietnam.

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