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The UK relationship between nominal wage inflation and the unemployment rate is unstable. Over sub‐periods of the last 160 years of turbulent data, Phillips curve slopes range from strongly negative, slightly negative, flat, slightly positive and strongly positive. Our constant‐parameter congruent model of real wages explains these instabilities, yet also implies a constant negative relationship between nominal wage inflation and the unemployment rate when corrected by its regressors. Disentangling these effects reveals that structural breaks in the real‐wage model's variables do not explain the instabilities, which instead occur during sub‐periods when some of its explanatory variables are insignificant. [ABSTRACT FROM AUTHOR]

We estimate the short run effects of Brexit border disruption on the UK economy. We estimate a structural VAR for the UK, where Brexit effects are identified by the dates of Brexit events, the referendum, and the exit from the single market. We find evidence of short run effects of Brexit: temporary effects on GDP, exports and imports (slightly negative), and on inflation and interest rates (slightly positive). These effects are consistent with modest disruption from introducing a border with the EU--a border due to be made barrier-free and seamless by the UK-EU Trade and Cooperation Agreement. Previous work using other countries as comparators is vulnerable to identification difficulties. We also survey earlier modeling work on the long run effects of evolving policies of free trade, UK-sourced regulation, and liberalized immigration. Models of long run trade suggest the emergence of substantial gains. [ABSTRACT FROM AUTHOR]

The aim of this study is to delve into the intricate the mechanism through which alterations in currency exchange rates give rise to shifts in inflation rates, while taking into careful consideration the country's economic cycle. In order to accomplish this objective, we used a dataset that spanned from 1 January 1999 to 1 July 2023, focusing our analytical lens on three specific geographic areas, namely the Eurozone, the United Kingdom, and Canada. In our pursuit of understanding this complex relationship, we employed the Markov Switching Vector Autoregressive model. Our research outcomes can be succinctly encapsulated as follows: in the initial stages, particularly during phases characterized by robust economic growth, the transmission of exchange rate effects onto inflation levels appeared to exhibit a partial impact across all geographic areas under examination. However, during periods marked by economic downturns, both the United Kingdom and Canada displayed a distinctly more comprehensive transmission of these effects. Moreover, the prevailing projections for the forthcoming time horizon, across all the countries encompassed by our study, strongly indicate the onset of an expansionary phase that is projected to extend over a span of 25 months. Lastly, concerning the implications of unexpected disturbances or shocks, it is noteworthy that the response of exchange rates to inflation induced shocks was neither immediate nor as pronounced as the corresponding reaction of inflation to sudden shifts in exchange rates. [ABSTRACT FROM AUTHOR]

Inequality among people has several unwanted effects, in humanistic, social and economic contexts. Several studies address distributional preferences among groups, but little is known about when inequality issues are focused and when and why inequality abatement measures are brought on the political agenda. We show that during the period 2004 to 2023, inequality issues were focused during elections to the EU and UK parliament and with greatest strength during the elections to the EU parliament in May 2004 and to the UK parliament in May 2015. Periods with high unemployment and inflation cause the discussion on inequality to be followed by discussions on inequality measures. However, when the discussion of inequality is followed very closely by the discussions of abatement measures, inequality aversion becomes more strongly associated with the macroeconomic variables inflation and GDP (recessions) than with unemployment and more strongly associated with the concerns for fairness than concerns with war and crime. The results were obtained examining Google Trends and scholarly studies. [ABSTRACT FROM AUTHOR]

Central Banks in major industrialized economies have struggled to keep inflation within their target ranges since the global financial crisis. The periods of missing inflation and deflation experienced in the post-crisis era have led to doubts about the traditional Fisher effect as a crucial component of the policy reaction function. We explore the NeoFisherian theory, which suggests an alternative causal relationship between the policy rate and inflation. We focus on the USA, UK, and EU and apply wavelet coherence analysis to examine the time–frequency lead–lag comovements on data spanning from January 2007 to March 2023. Our findings indicate increasing NeoFisherian dynamics, notably post-2013 taper tantrum, implying that Central Banks in industrialized economies have misunderstood monetary policy dynamics. [ABSTRACT FROM AUTHOR]

This study examines how inflation persistence evolves over time in Euro Area, the UK, the US, and OECD countries over the period of 1999:07-2021:09. We consider the persistence of core, energy, and food inflation, as well total inflation. Using an ARMA(1,1) model with time-varying autoregressive parameters based on the Kalman filter (TV-AR), we find that inflation persistence increases significantly during crisis periods and total persistence peaks during the COVID-19 pandemic. However, the persistence of energy inflation decreases due to the economic slowdown during the COVID-19 pandemic. These results highlight how inflation persistence is related to monetary policy objectives and conduct. The findings indicate that the various measures taken by the governments such as containment and closure policies, and travel restrictions to prevent the spread of COVID-19 cause to increase in total and food inflation persistences. Energy inflation persistence declines due to a slowdown in production during COVID-19. [ABSTRACT FROM AUTHOR]

This paper compares social policy responses to the cost-of-living crisis in the United Kingdom (UK) and Ireland. In seeking to protect citizens from an inflationary shock, a series of fundamental social policy questions arise. What would the aims of support packages be? To what extent should support be universal or targeted? If targeted, did existing policy architectures facilitate or frustrate the targeting of support? As the scale and persistence of the inflationary shock became evident, smaller and near-universal responses gave way to larger support packages with a greater reliance on targeting. Social security systems played an important role in policy responses, though often by passporting one-off payments rather than a strengthening of these core programmes. Passporting led both to improved distributional outcomes vis-à-vis the more universal elements but created new administrative challenges and led to rough justice in some circumstances. The reliance on one-off payments underlined the temporary nature of policy responses. [ABSTRACT FROM AUTHOR]

This paper empirically investigates the Gibson Paradox and the Fisher Effect for the UK during different metallic and non‐metallic regimes. The paper applies long‐span monthly data on the long‐term interest rate and the price index from 1790 to 1931. The ARDL cointegration is employed to study the long‐term relationship. Significant evidence is provided for the paradox during the uninterrupted gold standard era of the UK (1821–1914). We also find evidence of the paradox during the short‐term gold exchange standard era (1925–1931). Further results also confirm the Fisher Effect during the 1821–1914 period, providing some backing to its ability to explain the paradox. This is further asserted by the short‐run mutual influence between the rate of interest and the inflation rate. [ABSTRACT FROM AUTHOR]

Historians have suggested that there were waves of inflation or price revolutions in the United Kingdom (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1935. We study retail price inflation since 1251 and model its dynamics. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long‐horizon forecasts suggest only one inflation wave, that of the 20th century. We also use the model to measure inflation predictability and price‐level instability from the beginning of the sample and to provide measures of real interest rates since 1695. [ABSTRACT FROM AUTHOR]

We examine the extent to which monetary policy should respond to movements in sectoral inflation rates using a Generalized Taylor model that takes specific account of the sectoral make‐up of the consumer price index. We calibrate the model for each sector using the UK consumer price microdata. We find that a policy rule allowing for different responses to inflation in different sectors outperforms a rule targeting only aggregate inflation, as does a rule responding only to core inflation. However, we find that the optimal sectoral rule only leads to a small absolute improvement in terms of extra consumption. [ABSTRACT FROM AUTHOR]

What caused the recovery from the British Great Depression? A leading explanation – the 'expectations channel' – suggests that a shift in expected inflation lowered real interest rates and stimulated consumption and investment. However, few studies have measured, or tested the economic consequences of, inflation expectations. In this paper, we collect high‐frequency information from primary and secondary sources to measure expected inflation in the United Kingdom between the wars. A high‐frequency vector autoregression suggests that inflation expectations were an important source of the early stages of economic recovery in interwar Britain. [ABSTRACT FROM AUTHOR]

Changes in product characteristics on the extensive margin (the addition of new features and the removal of old ones) are an important and hitherto neglected dimension of quality change. Standard techniques for adjusting price indices for new goods cannot handle such changes satisfactorily, and this leads to an economically and statistically significant bias in the measurement of prices and real output. We combine insights from the theories of exact index numbers and demand for characteristics to develop a new method for incorporating changes on the extensive characteristic margin. Applied to U.K. data on new car sales, our method leads to revisions in estimated inflation rates for this commodity group that are both plausible and quantitatively important. [ABSTRACT FROM AUTHOR]

Copyright of Ekonomske Ideje i Praksa is the property of Centar za Izdavacku Delatnost Ekonomskog Fakulteta u Beogradu and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The United Kingdom is among the countries experiencing a cost-of-living crisis believed to be influenced, at least in part, by the dynamics of the international oil and gas markets. To this end, this study aims to achieve to achieve two objectives. Firstly, the dynamic association between the UK's inflation and oil and gas prices is examined. Further, the study examines whether the response of the UK's inflation to energy price dynamics is (a)symmetric. This study adopts wavelet coherency to determine the dynamic co-movement between energy prices and inflation. In addition, the dynamic simulated autoregressive distributed lag model (DS-ARDL) is used to examine the dynamic response of inflation to energy price changes. The estimation results reveal a symmetric response of inflation to gas price shocks. Further, the response of inflation to oil price shocks is asymmetric. Interestingly, the effect of gas price dynamics passes more strongly to inflation than to oil price dynamics. These findings suggest that a more diversified energy mix could help prevent substantial energy price pass-through to inflationary pressures. • The (a)symmetric response of UK inflation to oil and gas price dynamics is examined. • Wavelet Coherency and DS-ARDL model are used for analysis. • The response of inflation to gas price shocks is symmetric. • The response of inflation to oil price shocks is asymmetric. • The effect of gas price dynamics passes more strongly to inflation than oil price dynamics. [ABSTRACT FROM AUTHOR]

It is well established in the literature the ex post risk premium is higher than the ex ante risk premium and can vary substantially, but little research has been conducted in modelling the dynamic process between the two. This paper contributes by providing a theoretical framework to model the long-term dynamic relationship between the two risk premia in the UK and US. Using an Ornstein-Uhlenbeck (OU) ex ante model, that dominates several competitive models, we reveal slow reversion toward a stable long term ex post mean of 4% in both the UK and US markets. Results extend prior research by using an extended data set (1923–2019), providing a more precise and flexible estimation model, confirming that inflation and interest rates provide additional explanatory power over the long term but significantly less so across several regime shocks, especially during high inflation and periods of negative risk premia. By highlighting potential mispricing through a flexible approach we provide financially useful information to investors and regulators, particularly when central banks are manipulating equity prices. [ABSTRACT FROM AUTHOR]

The merit-order approach in the electricity market, which is in widespread use across the EU27 and the UK, has proven to be somewhat economically problematic in the context of the Russo-Ukrainian War. The massively increased gas prices since summer 2022—in the context of Russian supply cuts to the EU—has led to an abnormally high electricity price. Using the merit order approach, the price of electricity increases enormously if, as is often the case, gas is the last type of energy still realized in power generation; this leads to artificial increases in returns for all other types of energy providers whose output is used in power generation. Gas price increases by Russia or Russian supply cuts to the EU can increase the price of electricity and also the rate of inflation, as well as depress real income. The electricity price shock can be countered by switching—temporarily—to a modified regulation of the electricity market for a few years with a gas price subsidy in the electricity market. In a macroeconomic analysis, we identify both the output losses and adverse distributional effects of a gas price hike and find that a gas price subsidy is superior in stabilizing output and employment compared to a transfer; it also at least partially addresses certain distributional issues by reducing windfall profits in the electricity market. The study advocates a combination of gas price subsidies only in the electricity market and targeted transfers to households to meet both efficiency and distributional targets. The macro-analysis findings presented herein should be considered carefully, as they could minimize the welfare losses in the EU and the UK. As regards the expansion of renewable energy-based electricity, it is shown herein that the cost-differential between gas-fired power stations and renewable electricity is critical—large cost differentials imply barriers for the expansion of electricity generation from renewables unless there is a price regulation of electricity. There is the potential for an inefficient adjustment path due to nonlinearities. With a proposed narrow gas price cap for the electricity market only, the associated initial deficit related to necessary subsidies is, of course, much smaller than in the case of a general gas price cap. [ABSTRACT FROM AUTHOR]

This study investigates gold as a hedge or a safe haven against inflation in four countries. We propose two standard and quantile techniques in the volatility models, with a time-varying conditional variance of regression residuals based on TGARCH specifications. Gold exhibits considerable evidence of a strong hedge in the US and China. Nevertheless, gold provides shelter at different times and not consistently across countries. With regards to be a safe haven, gold retains its status as a key investment in China. On the other hand, gold only plays a minor role in the UK and India. These findings indicate that gold can secure Chinese investment during the high inflationary periods, while gold is a profitable asset to hold over a long period of time in the US. In contrast, UK and Indian investors should hold a well-diversified portfolio for sustainable return and protection from purchasing power loss. [ABSTRACT FROM AUTHOR]

Heritability is a fundamental concept in genetic studies, measuring the genetic contribution to complex traits and bringing insights about disease mechanisms. The advance of high-throughput technologies has provided many resources for heritability estimation. Linkage disequilibrium (LD) score regression (LDSC) estimates both heritability and confounding biases, such as cryptic relatedness and population stratification, among single-nucleotide polymorphisms (SNPs) by using only summary statistics released from genome-wide association studies. However, only partial information in the LD matrix is utilized in LDSC, leading to loss in precision. In this study, we propose LD eigenvalue regression (LDER), an extension of LDSC, by making full use of the LD information. Compared to state-of-the-art heritability estimating methods, LDER provides more accurate estimates of SNP heritability and better distinguishes the inflation caused by polygenicity and confounding effects. We demonstrate the advantages of LDER both theoretically and with extensive simulations. We applied LDER to 814 complex traits from UK Biobank, and LDER identified 363 significantly heritable phenotypes, among which 97 were not identified by LDSC. [ABSTRACT FROM AUTHOR]

Like many other countries, the United Kingdom (UK) produces a national consumer price index (CPI) to measure inflation. Presently, CPI measures are not produced for regions within the UK. It is believed that, using only available data sources, a regional CPI would not be precise or reliable enough as an official statistic, primarily because the regional partitioning of the data makes sample sizes too small. We investigate this claim by producing experimental regional CPIs using publicly available price data, and deriving expenditure weights from the Living Costs and Food survey. We detail the methods and challenges of developing a regional CPI and evaluate its reliability. We then assess whether model-based methods such as smoothing and small area estimation significantly improve the measures. We find that a regional CPI can be produced with available data sources, however it appears to be excessively volatile over time, mainly due to the weights. Smoothing and small area estimation improve the reliability of the regional CPI series to some extent but they remain too volatile for regional policy use. This research provides a valuable framework for the development of a more viable regional CPI measure for the UK in the future. [ABSTRACT FROM AUTHOR]

This paper aims to analyse the relationship between the euro/dollar exchange rate and oil prices and examine what effect this relationship had on the transmission of oil price fluctuations to headline inflation in the euro area since the currency's creation. We estimate an augmented Phillips curve including changes in oil price, through which we study the role of the exchange rate in oil price pass-through by using different specifications. The main findings reveal a positive relationship between the euro/dollar exchange rate and oil prices, such that an increase in the price of oil is followed by an appreciation in the euro. We also find that the transmission of oil price fluctuations to headline inflation in the euro area has been partially dampened by this appreciation in the euro/dollar exchange rate. These results do not hold for other economies with internationally relevant currencies, such as Japan and the United Kingdom. These findings have important implications for the implementation of monetary policy in the euro area in the face of oil price shocks. [ABSTRACT FROM AUTHOR]

▪ A surge in quit rates, labelled by some 'the great resignation', is underway in a number of economies, most notably the US. The jump likely reflects tight labour markets and possibly a reaction to rising inflation. With a potential feedback effect from higher wages to prices, these developments represent an area of considerable uncertainty and an upside risk to inflation.▪ The US quit rate has surged since economic reopening in early 2021 and at 3% is now at the highest level in two decades. With some lag, pay growth has been rising too and could go higher still based on the recent trajectory of quits.▪ Increasing US quit rates and a recent rise in the premium of pay growth for job switchers over job stayers are possible signals that workers are becoming more sensitive to inflation developments in the context of tight labour markets.▪ A soaring quit rate is also visible in the UK where job‐to‐job moves and resignations are at their highest in 20 years. The upward trend in UK pay growth is less clear than in the US, but some indicators suggest both quits and wage growth could strengthen further in 2022.▪ In the eurozone, labour market indicators look more subdued. The share of new starters in employment has risen in recent quarters but only back to the pre‐pandemic average. French vacancies have risen sharply; in Germany, however, a similar vacancy trend is not evident. Quit rates are flat in Japan.▪ Optimistically, rising quit rates may be symptoms of a temporary supply‐and‐demand mismatch in reopening economies. But more pessimistically, surging quit rates could signal a shift to a higher inflation regime. As such, quit rates look like a key indicator for investors and policymakers to keep an eye on. [ABSTRACT FROM AUTHOR]

This paper examines the degree of persistence in UK inflation by applying long‐memory methods to historical data that span the period from 1660 to 2016. Specifically, we use both parametric and non‐parametric fractional integration techniques, that are more general than those based on the classical I(0) vs. I(1) dichotomy. Further, we carry out break tests to detect any shifts in the degree of persistence, and also run rolling‐window and recursive regressions to investigate its evolution over time. On the whole, the evidence suggests that the degree of persistence of UK inflation has been relatively stable following the Bretton Woods period, despite the adoption of different monetary regimes. The estimation of an unobserved‐components stochastic volatility model sheds further light on the issues of interest by showing that post‐Bretton Woods changes in UK inflation are attributable to a fall in the volatility of permanent shocks. The same type of analysis carried out for US inflation, for comparison purposes, leads to broadly similar conclusions. [ABSTRACT FROM AUTHOR]

▪ Inflation in the UK is set to peak higher for longer than we previously expected. But structural factors plus the likelihood that supply problems will eventually be resolved mean we still think the spike will prove transitory.▪ We now think that CPI inflation will peak over 4% and remain above 3% until H2 2022. Rising petrol prices in the near‐term and another hefty rise in energy bills likely next April will fuel the increase.▪ But so far price pressures have been localised, while we see little evidence that higher inflation is feeding into inflation expectations. And even if it did, most workers have less negotiating power compared to past high inflation episodes. [ABSTRACT FROM AUTHOR]

This paper focuses on the time series of UK inflation to isolate a low‐frequency and slow‐moving component (the trend) from deviations around this trend. This slow‐moving trend explains a substantial share of UK inflation dynamics. International prices are significantly correlated with the cyclical movements, and the exchange rate is significantly correlated with movements in the persistent trend. The significance of variables emphasized in standard models (i.e. slack and inflation expectations) varies, and the magnitude of their effects is smaller than for commodity prices and exchange rates. These results highlight the sensitivity of UK inflation to external events and provide guidance on how monetary policy should respond. [ABSTRACT FROM AUTHOR]

The Fisher Effect is one of the most widely studied relationships in monetary economics. Previous studies have found little evidence of a Fisher effect in pre-World War I data for the United Kingdom. An explanation for this is the near white noise property of the inflation rate under the Classical Gold Standard. There is more evidence of a Fisher effect in the post-World War II years when the inflation rate showed more persistence. This paper studies the evidence on the Fisher effect over the time period 1844-2018. This period covers several distinct monetary regimes. The monetary regime is an important factor determining the time series behavior of the inflation rate which, in turn, has been shown to be crucial to the strength of the Fisher effect. Distinctive features of the study are the focus on the long-term interest rate and coverage of the current inflation targeting regime in the United Kingdom. [ABSTRACT FROM AUTHOR]

In economic theory the Phillips curve presents the relationship between the unemployment rate and inflation rate. The inflation and unemployment rate bring important information about the stages of the economic cycle. This article attempts to find an answer to the question of whether the development of the difference between the unemployment and inflation rate, the so-called signal gap, may be an indicator of changes in the economic cycle. Quarterly data on the Czech Republic, France, Great Britain and the Republic of Korea were used to verify this hypothesis. [ABSTRACT FROM AUTHOR]

▪ Rapid house price rises are feeding into a broader asset price boom that's the strongest in decades and also unusually synchronised across assets. This trend has potentially large macroeconomic effects. Recent asset booms haven't generally been inflationary, but the current one, alongside other upward pressures on prices, adds to the need for central bank vigilance.▪ House prices are growing at over 10% y/y in many major economies, with real prices across the advanced economies climbing at the fastest pace since the peak of 2005. The housing surge is part of a broader asset boom encompassing stocks and commodities. US stocks already looked overvalued before the pandemic, but the current asset price surge is the biggest in decades and also unusually synchronised across assets.▪ The asset price boom has potentially large impacts on spending. We forecast US household wealth will rise around 20% this year, a record pace, which could add about 2% to consumer spending. The impact on consumption could be boosted by a revival in home equity withdrawal visible in the US and UK.▪ Rising asset prices could also be an indicator of inflation risks, especially in the context of loose monetary conditions and other upward pressures. The historical experience is mixed, with asset booms sometimes associated with high inflation but not consistently so.▪ Well‐anchored inflation expectations cut the risk of asset inflation spilling over to price inflation, but loose monetary conditions could push asset prices even higher, risking an eventual sharp correction. For central banks, neither this outcome nor persistently higher inflation are attractive prospect. [ABSTRACT FROM AUTHOR]

Technical factors will push inflation up in the short‐term and the fallout from the pandemic will raise inflation risks further out. But on balance we think a mix of the stronger pound, a persistent output gap, and more fundamental forces point against the UK entering a new era of sustained higher inflation. ▪ Comparisons with a depressed 2020 and the end of the temporary VAT cut for hospitality will mechanically raise inflation this year. And were consumers to spend a bigger‐than‐expected share of savings, combined with the recent surge in money growth, that rise could continue for longer than we expect.▪ The pandemic's repercussions could result in persistent upward pressure on prices. But the stability of inflation over the last 30 years and the effect of this on expectations is a major counter. Equally, the institutions and labour and product markets which facilitated high inflation in the past are lacking. [ABSTRACT FROM AUTHOR]

Food prices and affordability play an important role in influencing dietary choices, which in turn have implications for public health. With inflationary increases in the cost-of-living in the UK since 2021, understanding the dynamics of food prices becomes increasingly important. In this longitudinal study, we aimed to examine changes in food prices from 2013 to 2023 by food group and by food healthiness. We established a dataset spanning the years 2013–2023 by combining price data from the UK Consumer Price Index for food and beverage items with nutrient and food data from the UK nutrient databank and UK Department of Health & Social Care's National Diet and Nutrition Survey data. We calculated the price (£/100 kcal) for each food item by year as well as before and during the period of inflationary pressure, and classified items into food groups according to the UK Eatwell Guide and as either "more healthy" or "less healthy" using the UK nutrient profiling score model. In 2023, bread, rice, potatoes and pasta was cheapest (£0.12/100 kcal) and fruit and vegetables most expensive (£1.01/100 kcal). Less healthy food was cheaper than more healthy food (£0.33/100 kcal versus £0.81/100 kcal). Before the inflationary pressure period (from 2013 to late 2021), the price of foods decreased by 3%. After this period, the price of food increased by 22%: relative increases were highest in the food group milk and dairy food (31%) and less healthy category (26%). While healthier foods saw smaller relative price increases since 2021, they remain more expensive, potentially exacerbating dietary inequalities. Policy responses should ensure food affordability and mitigate price disparities via, for example, healthy food subsidies. • Between 2013 and 2023, food prices increased by 20% (£0.07/100 kcal). • Before the inflationary pressure period from 2013 to 2021, food prices fell by 3%. • During the inflationary pressure period from 2021 to 2023, food prices increased by 22%. • Milk and dairy had the highest price increases, and fruit and vegetables the lowest. • More healthy food had a higher absolute price rise, while less healthy food had a larger relative rise. [ABSTRACT FROM AUTHOR]

Copyright of Zeitschrift fur Wirtschaftspolitik is the property of De Gruyter and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)