Evolving UK and US Macroeconomic Dynamics Through the Lens of a Model of Deterministic Structural Change

63 Pages Posted: 28 Jul 2011

See all articles by George Kapetanios

George Kapetanios

King's College, London

Anthony Yates

Bank of England - Monetary Analysis

Date Written: July 28, 2011

Abstract

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.

JEL Classification: C10,C14

Suggested Citation

Kapetanios, George and Yates, Anthony, Evolving UK and US Macroeconomic Dynamics Through the Lens of a Model of Deterministic Structural Change (July 28, 2011). Bank of England Working Paper No. 434, Available at SSRN: https://ssrn.com/abstract=1898067 or http://dx.doi.org/10.2139/ssrn.1898067

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Anthony Yates (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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