Evolving UK and US macroeconomic dynamics through the lens of a model of deterministic structural change

George Kapetanios, A Yates

Research output: Contribution to journalArticle (Academic Journal)

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 moderations 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.
Original languageEnglish
Number of pages41
JournalEmpirical Economics
Early online date11 Oct 2013
DOIs
Publication statusPublished - Oct 2013

Keywords

  • Kernel
  • VAR
  • Inflation persistence
  • Great Moderation

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