TY - JOUR

T1 - Changes in the relationship between short‐term interest rate, inflation and growth: evidence from the UK, 1820–2014

AU - Bataa, Erdenebat

AU - Vivian, Andrew

AU - Wohar, Mark

PY - 2019/10

Y1 - 2019/10

N2 - This paper examines the dynamic relationship between interest rates, inflation and economic growth using a long dataset for the UK. The approach adopted enables us to identify structural breaks in the dynamic system (vector autoregression (VAR)). We find interest rates respond much more strongly to growth and inflation over recent decades, and forecast error variance decomposition analysis indicates there is increasing interconnectedness between the variables in recent years. Economic policymakers need to carefully monitor the linkages between these variables and be prepared to adjust their monetary policy tools when faced with structural changes.

AB - This paper examines the dynamic relationship between interest rates, inflation and economic growth using a long dataset for the UK. The approach adopted enables us to identify structural breaks in the dynamic system (vector autoregression (VAR)). We find interest rates respond much more strongly to growth and inflation over recent decades, and forecast error variance decomposition analysis indicates there is increasing interconnectedness between the variables in recent years. Economic policymakers need to carefully monitor the linkages between these variables and be prepared to adjust their monetary policy tools when faced with structural changes.

U2 - https://doi.org/10.1111/boer.12199

DO - https://doi.org/10.1111/boer.12199

M3 - Article

VL - 71

SP - 616

EP - 640

JO - Bulletin of Economic Research

JF - Bulletin of Economic Research

SN - 0307-3378

IS - 4

ER -