Inflation adjustment in the open economy: an I(2) analysis of UK prices
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Inflation adjustment in the open economy : an I(2) analysis of UK prices. / Nielsen, Heino Bohn; Bowdler, Christopher.
In: Empirical Economics, Vol. 31, No. 3, 2006, p. 569-586.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Inflation adjustment in the open economy
T2 - an I(2) analysis of UK prices
AU - Nielsen, Heino Bohn
AU - Bowdler, Christopher
N1 - JEL Classification: C32, E31, F0
PY - 2006
Y1 - 2006
N2 - This paper estimates a cointegrated vector autoregressive (VAR) model for UK data on consumer prices, unit labour costs, import prices and real consumption growth. The estimated VAR indicates that the nominal variables are characterised by I(2) trends, and that a linear combination of these processes cointegrate to I(1). This supports an analysis in which I(1) and I(2) restrictions are imposed. A key finding is that an increase in real import prices reduces productivity adjusted real wages, such that the change in domestic inflation is moderated. This may explain why the depreciation of sterling in 1992 left inflation unchanged
AB - This paper estimates a cointegrated vector autoregressive (VAR) model for UK data on consumer prices, unit labour costs, import prices and real consumption growth. The estimated VAR indicates that the nominal variables are characterised by I(2) trends, and that a linear combination of these processes cointegrate to I(1). This supports an analysis in which I(1) and I(2) restrictions are imposed. A key finding is that an increase in real import prices reduces productivity adjusted real wages, such that the change in domestic inflation is moderated. This may explain why the depreciation of sterling in 1992 left inflation unchanged
KW - Faculty of Social Sciences
KW - cointegration
KW - I(2)
KW - inflation
KW - import prices
U2 - 10.1007/s00181-005-0030-9
DO - 10.1007/s00181-005-0030-9
M3 - Journal article
VL - 31
SP - 569
EP - 586
JO - Empirical Economics
JF - Empirical Economics
SN - 0377-7332
IS - 3
ER -
ID: 313146