Low Inflation vs. Stable Inflation: Evidence from the UK, 1688–2009

13 Pages Posted: 7 Oct 2015

See all articles by Georgios Karras

Georgios Karras

University of Illinois at Chicago - Department of Economics

Date Written: November 2015

Abstract

This paper investigates the relationship between inflation and inflation volatility. Using annual data from 1688 to 2009, the results show that UK inflation and its volatility have been positively correlated when inflation exceeds a certain value, but negatively correlated when inflation is below this threshold. The evidence also suggests that the break in the relationship occurs between annual inflation rates of 0.6% and 5.5%, which includes both the 2% inflation target of many central banks, and the 3.5% break point predicted by the New Keynesian model of Coibion et al. (2012).

Suggested Citation

Karras, Georgios, Low Inflation vs. Stable Inflation: Evidence from the UK, 1688–2009 (November 2015). Scottish Journal of Political Economy, Vol. 62, Issue 5, pp. 505-517, 2015, Available at SSRN: https://ssrn.com/abstract=2670336 or http://dx.doi.org/10.1111/sjpe.12090

Georgios Karras (Contact Author)

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