Inflation Targeting in the United Kingdom: Information Content of Financial and Monetary Variables

28 Pages Posted: 15 Feb 2006

See all articles by Josef Baumgartner

Josef Baumgartner

Austrian Institute of Economic Research (WIFO)

Ramana Ramaswamy

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: May 1996

Abstract

The main objective of this paper is to identify a set of leading indicators of inflation for the United Kingdom, and discuss the conceptual issues pertaining to inflation targeting. The main conclusions are that narrow money has strong leading indicator properties for inflation, while broad money does not. Long yields appear to have some information for the GDP deflator, and headline inflation, and short yields for underlying inflation. Spreads between commercial paper and gilts, and the yield curve, have very little predictive information on inflation. An interesting conclusion is that while the nominal effective exchange rate is not a good predictor of inflation, the sterling-deutsche mark exchange rate appears to have weak predictive information on the targeted measure of inflation.

JEL Classification: E5, E52, C5

Suggested Citation

Baumgartner, Josef and Ramaswamy, Ramana, Inflation Targeting in the United Kingdom: Information Content of Financial and Monetary Variables (May 1996). IMF Working Paper No. 96/44, Available at SSRN: https://ssrn.com/abstract=882944

Josef Baumgartner (Contact Author)

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Ramana Ramaswamy

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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