The historical role of energy in UK inflation and productivity and implications for price inflation in 2022
We model UK price and wage inflation, productivity and unemployment over a century and a half of data, selecting dynamics, relevant variables, non-linearities and location and trend shifts us¬ing indicator saturation estimation. The four congruent econometric equations highlight complex int...
| Príomhchruthaitheoirí: | , , |
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| Formáid: | Working paper |
| Teanga: | English |
| Foilsithe / Cruthaithe: |
University of Oxford
2022
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| _version_ | 1826308377030950912 |
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| author | Castle, JL Hendry, DF Martinez, AB |
| author_facet | Castle, JL Hendry, DF Martinez, AB |
| author_sort | Castle, JL |
| collection | OXFORD |
| description | We model UK price and wage inflation, productivity and unemployment over a century and a half of data, selecting dynamics, relevant variables, non-linearities and location and trend shifts us¬ing indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs ad-ditional to capital and labour, and although the price inflation equation shows a small direct impact of energy prices, the substantial rise in oil and gas prices seen by mid-2022 contribute half of the increase in price inflation. We find empirical evidence for non-linear adjustments of real wages to inflation: a wage-price spiral kicks in when inflation exceeds about 6–8% p.a. We also find an addi-tional non-linear reaction to unemployment, consistent with involuntary unemployment. A reduction in energy availability simultaneously reduces output and exacerbates inflation. |
| first_indexed | 2024-03-07T07:18:36Z |
| format | Working paper |
| id | oxford-uuid:95180014-1bb8-400c-b1c1-83b8899699b6 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T07:18:36Z |
| publishDate | 2022 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:95180014-1bb8-400c-b1c1-83b8899699b62022-09-09T09:56:57ZThe historical role of energy in UK inflation and productivity and implications for price inflation in 2022Working paperhttp://purl.org/coar/resource_type/c_8042uuid:95180014-1bb8-400c-b1c1-83b8899699b6EnglishSymplectic ElementsUniversity of Oxford2022Castle, JLHendry, DFMartinez, ABWe model UK price and wage inflation, productivity and unemployment over a century and a half of data, selecting dynamics, relevant variables, non-linearities and location and trend shifts us¬ing indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs ad-ditional to capital and labour, and although the price inflation equation shows a small direct impact of energy prices, the substantial rise in oil and gas prices seen by mid-2022 contribute half of the increase in price inflation. We find empirical evidence for non-linear adjustments of real wages to inflation: a wage-price spiral kicks in when inflation exceeds about 6–8% p.a. We also find an addi-tional non-linear reaction to unemployment, consistent with involuntary unemployment. A reduction in energy availability simultaneously reduces output and exacerbates inflation. |
| spellingShingle | Castle, JL Hendry, DF Martinez, AB The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 |
| title | The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 |
| title_full | The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 |
| title_fullStr | The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 |
| title_full_unstemmed | The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 |
| title_short | The historical role of energy in UK inflation and productivity and implications for price inflation in 2022 |
| title_sort | historical role of energy in uk inflation and productivity and implications for price inflation in 2022 |
| work_keys_str_mv | AT castlejl thehistoricalroleofenergyinukinflationandproductivityandimplicationsforpriceinflationin2022 AT hendrydf thehistoricalroleofenergyinukinflationandproductivityandimplicationsforpriceinflationin2022 AT martinezab thehistoricalroleofenergyinukinflationandproductivityandimplicationsforpriceinflationin2022 AT castlejl historicalroleofenergyinukinflationandproductivityandimplicationsforpriceinflationin2022 AT hendrydf historicalroleofenergyinukinflationandproductivityandimplicationsforpriceinflationin2022 AT martinezab historicalroleofenergyinukinflationandproductivityandimplicationsforpriceinflationin2022 |