The historical role of energy in UK inflation and productivity with implications for price inflation
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 using indicator saturation estimation. The four congruent econometric equations highlight complex interacting e...
| Main Authors: | , , |
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| Formato: | Journal article |
| Idioma: | English |
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Elsevier
2023
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| _version_ | 1826311454573199360 |
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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 using indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs additional 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 additional non-linear reaction to unemployment, consistent with involuntary unemployment. A reduction in energy availability simultaneously reduces output and exacerbates inflation. |
| first_indexed | 2024-03-07T08:08:38Z |
| format | Journal article |
| id | oxford-uuid:c1c5ae39-0dbb-4c62-bc7d-df8bb791dfcd |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T08:08:38Z |
| publishDate | 2023 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:c1c5ae39-0dbb-4c62-bc7d-df8bb791dfcd2023-11-14T09:50:36ZThe historical role of energy in UK inflation and productivity with implications for price inflationJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:c1c5ae39-0dbb-4c62-bc7d-df8bb791dfcdEnglishSymplectic ElementsElsevier2023Castle, 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 using indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs additional 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 additional 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 with implications for price inflation |
| title | The historical role of energy in UK inflation and productivity with implications for price inflation |
| title_full | The historical role of energy in UK inflation and productivity with implications for price inflation |
| title_fullStr | The historical role of energy in UK inflation and productivity with implications for price inflation |
| title_full_unstemmed | The historical role of energy in UK inflation and productivity with implications for price inflation |
| title_short | The historical role of energy in UK inflation and productivity with implications for price inflation |
| title_sort | historical role of energy in uk inflation and productivity with implications for price inflation |
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