Inflation Targeting in the United Kingdom: Information Content of Financial and Monetary Variables

May 1, 1996

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Josef Baumgartner, and Ramana Ramaswamy. Inflation Targeting in the United Kingdom: Information Content of Financial and Monetary Variables, (USA: International Monetary Fund, 1996) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The main objective of this paper is to identify a set of leading indicators of inflation for the United Kingdom, and discuss the conceptual issues pertaining to inflation targeting. The main conclusions are that narrow money has strong leading indicator properties for inflation, while broad money does not. Long yields appear to have some information for the GDP deflator, and headline inflation, and short yields for underlying inflation. Spreads between commercial paper and gilts, and the yield curve, have very little predictive information on inflation. An interesting conclusion is that while the nominal effective exchange rate is not a good predictor of inflation, the sterling-deutsche mark exchange rate appears to have weak predictive information on the targeted measure of inflation.

Subject: Cyclical indicators, Economic growth, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Nominal effective exchange rate, Prices

Keywords: Commercial paper, Cyclical indicators, Deutsche mark exchange rate, Exchange rates, GDP deflator, Inflation, Inflation forecasting horizon, Inflation targeting, Inflation well, Leading indicators of inflation, Narrow money, Nominal effective exchange rate, Right, Time series, WP, Yield curve

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/044
Stock No:

WPIEA0441996
ISBN:

9781451974720
ISSN:

1018-5941

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