Do we need nominal rigidity? Accounting for exchange rate and inflation behaviour within a classical framework

In section two of the thesis the objective is to show that the degree of inflation persistence -- that is the extent to which an inflation shock does not fade away in subsequent quarters -- is not an inherent fixed characteristic of an economy, but if fact depends on the stability and transparency of the monetary policy regime in place. Given the large econometric evidence of high inflation persistence for the US and other OECD countries, many macroeconomists have concluded that high inflation persistence is a 'stylised fact' and that furthermore it is evidence for a 'New Keynesian' Phillips Curve in which inflation depends to a high degree on past inflation -- 'nominal rigidity'. To examine these claims for the UK, I begin by estimating regressions of inflation on its own past values for separate sample periods, for each of which the monetary policy regime was differen

Are the facts of UK inflation persistence to be explained by nominal rigidity or changes in monetary regime?

It has been widely argued that inflation persistence since WWII has been widespread and durable and that it can only be accounted for by models with a high degree of nominal rigidity. We examine UK post-war data and find that the varying persistence it reveals is largely due to changing monetary regimes and that models with moderate or even no nominal rigidity are best equipped to explain it.

Can a pure Real Business Cycle model explain the real exchange rate?

This paper establishes the ability of a Real Business Cycle model to account for UK real exchange rate behaviour. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% con�dence limits for a time-series representation of the real exchange rate, as well as for various key data moments. The results suggest RBC models can explain real exchange rate movements

Can the facts of UK inflation persistence be explained by nominal rigidity?

It has been widely argued that inflation persistence since WWII has been widespread and durable and that it can only be accounted for by models with a high degree of nominal rigidity. We examine UK post-war data where after confirming previous studies' findings of varying persistence due to changing monetary regimes, we find that models with little nominal rigidity are best equipped to explain it

Do we need nominal rigidity? : accounting for exchange rate and inflation behaviour within a classical framework

In section two of the thesis the objective is to show that the degree of inflation persistence -- that is the extent to which an inflation shock does not fade away in subsequent quarters -- is not an inherent fixed characteristic of an economy, but if fact depends on the stability and transparency of the monetary policy regime in place. Given the large econometric evidence of high inflation persistence for the US and other OECD countries, many macroeconomists have concluded that high inflation persistence is a 'stylised fact' and that furthermore it is evidence for a 'New Keynesian' Phillips Curve in which inflation depends to a high degree on past inflation -- 'nominal rigidity'. To examine these claims for the UK, I begin by estimating regressions of inflation on its own past values for separate sample periods, for each of which the monetary policy regime was different.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Real Exchange Rate Overshooting RBC Style

This paper establishes the ability of a Real Business Cycle model to account for real exchange rate (RXR) behaviour, using UK experience as empirical focus. We show that a productivity burst simulation is capable of explaining the appreciation of RXR and its cyclical pattern observed in the data. We then test if our model is consistent with the facts. We bootstrap our model to generate pseudo RXR series and check if the ARIMA parameters estimated for the data lie within 95% confidence limits implied by our model. We find that RXR behaviour is explicable within an RBC framework.productivity; real business cycle; real exchange rate

Can a real business cycle model without price and wage stickiness explain UK real exchange rate behaviour?

This paper establishes the ability of a Real Business Cycle model to account for UK real exchange rate behaviour. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a time-series representation of the real exchange rate, as well as for various key data moments. The results suggest RBC models can explain real exchange rate movements.Real exchange rate Productivity Real business cycle Bootstrap Indirect inference

Can a Real Business Cycle Model without price and wage stickiness explain UK real exchange rate behaviour?

This paper establishes the ability of a Real Business Cycle model to account for real exchange rate behaviour, using UK data. We show that a productivity simulation is capable of explaining initial real appreciation with subsequent depreciation to a lower steady state. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a time-series representation of the real exchange rate, as well as for various key data moments. The results suggest RBC models can explain real exchange rate movements.Real Exchange Rate; Productivity; Real Business Cycle; Bootstrap; Indirect Inference

UK Inflation Persistence: Policy or Nature?

A large econometric literature has found that post-war US inflation exhibits very high persistence, approaching that of a random walk process. Given similar evidence for other OECD countries, many macroeconomists have concluded that high inflation persistence is a 'stylized fact'. The objective of this paper is to show that degree of inflation persistence is not an inherent structural characteristic of an economy, but in fact a function of the stability and transparency of monetary policy regime in place. We begin by estimating univariate processes for inflation across different periods, allowing for structural breaks based on a priori knowledge of the UK economy. Then we examine whether, a rather straightforward model, easily micro-founded in a standard classical set-up can generate the facts such as we find them. We calibrate our structural model for each of the regimes and solve it analytically for the implied persistence in the inflation process. We compare this theoretical prediction with the estimated persistence for each regime. Finally we bootstrap our model to generate pseudo inflation series and check whether the actual persistence coefficients lie within the 95 percent confidence limits implied by the bootstraps. As a robustness exercise we do the same for the Liverpool model.bootstraps; inflation