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Do monetary shocks exert nonlinear real effects on UK industrial production?
preprintposted on 2006-03-29, 10:30 authored by Mark J. Holmes, Ping Wang
This study investigates whether or not UK industrial production is characterised by a nonlinear response to monetary shocks. Our methodology is based on logistic smooth transition vector autoregression modelling where we employ monthly data for the period January 1960 to August 1999. We find evidence of small, though nonetheless significant nonlinearities. Furthermore, we find support for a range of New Keynesian arguments insofar as greater price flexibility, and therefore less real adjustment, occurs against a background of high inflation. In addition, the potency of monetary shocks can depend on the position of the UK economy in the business cycle.
This paper forms part of the ESRC funded project (Award No. L1382511013) “Business Cycle Volatility and Economic Growth: A Comparative Time Series Study”, which itself is part of the Understanding the Evolving Macroeconomy Research programme.
- Business and Economics
Publisher© Loughborough University
NotesThis is Business Cycle Volatility and Economic Growth Research Paper No. 00/4.