Evolving UK and US Macroeconomic Dynamics Through the Lens of a Model of Deterministic Structural Change
University of London - Queen Mary College - Department of Economics
Bank of England - Monetary Analysis
July 28, 2011
Bank of England Working Paper No. 434
Using a model of deterministic structural change, we revisit several topics in inflation dynamics explored previously using stochastic, time - varying parameter models. We document significant reductions in inflation persistence and predictability. We estimate that changes in the volatility of shocks were decisive in accounting for the great moderation's of the United States and the United Kingdom. We also show that the magnitude and the persistence of the response of inflation and output to monetary policy shocks has fallen in these two countries. These findings should be of interest in those seeking to resolve theoretical debates about the sources of apparent nominal and real frictions in the macroeconomy, and the causes of the Great Moderation.
Number of Pages in PDF File: 63
JEL Classification: C10,C14
Date posted: July 28, 2011
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