Can the Fiscal Theory of the Price Level Explain UK Inflation in the 1970s?
affiliation not provided to SSRN
Cardiff University Business School; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. DP7630
We investigate whether the Fiscal Theory of the Price Level can deliver a reasonable explanation for UK inflation in the 1970s, a period in which the government greatly increased public spending without raising taxes and monetary policy was accommodative. The model is tested for its implied cointegration between inflation and government spending and for its dynamics by using the method of indirect inference, under which the models simulated behaviour is compared with the inflation time-series process. We find that the model is accepted in both respects.
Number of Pages in PDF File: 29
Keywords: Bootstrap simulation, Fiscal Theory of the Price Level, Indirect inference, UK Inflation, Wald statistic
JEL Classification: E31, E37, E62, E65working papers series
Date posted: January 20, 2010
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