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The role of fi scal policy in Britain ' s Great In fl ation ☆
| Content Provider | Semantic Scholar |
|---|---|
| Author | Fan, Jingwen Minford, Patrick Ou, Zhirong |
| Copyright Year | 2016 |
| Abstract | JEL classification: E31 E37 E62 E65 We investigate whether the Fiscal Theory of the Price Level (FTPL) can explain UK inflation in the 1970s.We confront the identification problem involved by setting up the FTPL as a structural model for the episode and pitting it against an alternative Orthodox model; the models have a reduced form that is common in form but, because each model is over-identified, numerically distinct. We use indirect inference to test which model could be generating theVECMapproximation to the reduced form thatwe estimate on the data for the episode. Neithermodel is rejected, though the FTPLmodel substantially outperforms the Orthodox. But by far the best account of the period assumes that expectations were a probability-weighted combination of the two regimes. Fiscal policy has a substantial role in this weighted model in determining inflation. A similar model accounts for the 1980s but this role of fiscal policy is much diminished. © 2016 Elsevier B.V. All rights reserved. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://irep.ntu.ac.uk/id/eprint/29439/1/PubSub6937_Fan.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
