Subscribe to thousands of academic journals for just $40/month
Read and share the articles you need for your research, all in one place.

Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model

Oxford Economic Papers , Volume 61 (1) – Jan 1, 2009

Details

Publisher
Oxford University Press
Copyright
Copyright © 2009 Oxford University Press
ISSN
0030-7653
eISSN
1464-3812
D.O.I.
10.1093/oep/gpn013
Publisher site
See Article on Publisher Site

Preview Only

Expand Tray Hide Tray

Does high M4 money growth trigger large increases in UK inflation? Evidence from a regime-switching model

Abstract

March 2007 saw an increase of 3.1% in UK inflation and triggered the first explanatory letter from the Governor of the Bank of England to the Chancellor of the Exchequer since the Bank of England was granted operational independence in May 1997. The letter gave rise to a lively debate on whether policymakers should pay attention to the link between inflation and M4 money growth. Using UK data since the introduction of inflation targeting in October 1992, we show that: (i) the relationship between inflation and M4 growth is not stable over time, and (ii) the tendency of M4 to exert inflationary pressures is conditional on annual M4 growth exceeding 9.8%. Above this threshold, the money effect on inflation is very small. The implication is that the Monetary Policy Committee should not be particularly worried for not paying close attention to M4 money movements when setting interest rates.
Loading next page...

Preview Only. This article cannot be rented because we do not currently have permission from the publisher.

 
/lp/oxford-university-press/does-high-m4-money-growth-trigger-large-increases-in-uk-inflation-VWNw161wj0