Global Liquidity, Money Growth and UK Inflation
17 Pages Posted: 8 Dec 2016 Last revised: 29 Jun 2018
Date Written: March 23, 2018
This paper uses tools from the classical theory of inflation for UK Consumer Price Inflation from 1970Q1 to 2017Q4. In particular, we adopt augmented Phillips curve type equations within a linear and regime-switching framework where regimes are governed by previous inflation rates. Our non-linear models show that a monetary explanation of inflation is prominent during periods of high inflation. However our models imply that during periods of high inflation, The Bank of England should monitor monetary conditions in conjunction with monetary policy stance; as these can help dampen inflation persistence.
Keywords: Global Liquidity, Inflation, Divisia Money, Non-linear Model
JEL Classification: C5, E5
Suggested Citation: Suggested Citation