On the Asymmetric U-Shaped Relationship between Inflation, Inflation Uncertainty, and Relative Price Skewness in the UK



Chaudhuri, Kausik, Greenwood-Nimmo, Matthew, Kim, Minjoo ORCID: 0000-0002-5454-2257 and Shin, Yongcheol
(2013) On the Asymmetric U-Shaped Relationship between Inflation, Inflation Uncertainty, and Relative Price Skewness in the UK. JOURNAL OF MONEY CREDIT AND BANKING, 45 (7). pp. 1431-1449.

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Abstract

<jats:p>We investigate the asymmetric relationships between aggregate inflation and the second and third moments of the cross‐sectional distribution of relative prices using a modified Calvo pricing model with regime‐dependent price rigidities. Calibration experiments reveal that the inflation‐standard deviation and inflation‐skewness relationships exhibit U‐shaped asymmetries around the historical mean inflation rate. UK sectoral data support our results. We conclude that monetary policy should target an inflation rate proximate to the (common) minima of these nonlinear relationships and that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments.</jats:p>

Item Type: Article
Uncontrolled Keywords: inflation, regime-dependent price rigidity, sectoral heterogeneity, UK
Depositing User: Symplectic Admin
Date Deposited: 29 Oct 2018 12:22
Last Modified: 03 Oct 2023 00:22
DOI: 10.1111/jmcb.12058
Related URLs:
URI: https://livrepository.liverpool.ac.uk/id/eprint/3028126