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Inflation Adjustment in the Open Economy: An I(2) Analysis of UK Prices.

Abstract:

We analyse a cointegrated VAR comprising UK data on consumer prices, unit labour costs, import prices and real consumption growth. The nominal variables, treated as I(2) here, form a linearly homogeneous relation, suggesting a transformation of the system to one comprising inflation and relative prices. This is then estimated in I(1) space. An impulse response analysis using the results suggests that higher real import prices reduce real wages, such that the impact of an external shock on dom...

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Volume:
2003-W05
Series:
Economics Working Papers
Publication date:
2003-01-01
URN:
uuid:40f47f1b-d399-4ae0-ba7b-eff77b41b946
Local pid:
oai:economics.ouls.ox.ac.uk:14589
Language:
English

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