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Volatility and Time Series EconometricsEssays in Honor of Robert Engle$
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Tim Bollerslev, Jeffrey Russell, and Mark Watson

Print publication date: 2010

Print ISBN-13: 9780199549498

Published to Oxford Scholarship Online: May 2010

DOI: 10.1093/acprof:oso/9780199549498.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 22 September 2021

Modeling UK Inflation Uncertainty, 1958–2006

Modeling UK Inflation Uncertainty, 1958–2006

Chapter:
(p.62) 4 Modeling UK Inflation Uncertainty, 1958–2006
Source:
Volatility and Time Series Econometrics
Author(s):

Gianna Boero

Jeremy Smith (Contributor Webpage)

Kenneth F. Wallis

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199549498.003.0004

The empirical application in Engle's original autoregressive conditional heteroskedastic (ARCH) paper was to UK inflation uncertainty. This chapter tests the external validity of Engle's conclusion by extending his 1958-77 sample through 2006. The chapter is organized as follows. Section 2 contains a brief review of UK inflationary experience and the associated policy environment(s), 1958-2006. Section 3 returns to Engle's original ARCH regression model, and examines its behaviour over the extended period. Section 4 turns to a fuller investigation of the nature of the nonstationarity of inflation, preferring a model with structural breaks, stationary within subperiods. Section 5 considers a range of measures of inflation forecast uncertainty, from these models and other UK sources. Section 6 considers the association between uncertainty and the level of inflation, first mooted in Milton Friedman's Nobel lecture. Section 7 concludes.

Keywords:   United Kingdom, inflation, autoregressive conditional heteroskedasticity, ARCH model, uncertainty, nonstationary behaviour

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