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The Role of Energy in UK Inflation and Productivity
We model UK price and wage inflation, productivity and unemployment over a century and a half of data, selecting dynamics, relevant variables, non-linearities and location and trend shifts using indicator saturation estimation. The four congruent econometric equations highlight complex interacting empirical relations. The production function reveals a major role for energy inputs additional to capital and labour, and although the price inflation equation shows a small direct impact of energy prices, the substantial rise in oil and gas prices seen by mid-2022 contribute half of the increase in price inflation. We find empirical evidence for non-linear adjustments of real wages to inflation: a wage-price spiral kicks in when inflation exceeds about 6—8\% p.a. We also find an additional non-linear reaction to unemployment, consistent with involuntary unemployment. A reduction in energy availability simultaneously reduces output and exacerbates inflation.
This is joint work with Jennie Castle and Andrew Martinez
Date:
20 October 2022, 14:00
Venue:
Virtual event via Zoom
Speaker:
Prof Sir David Hendry (INET Oxford, University of Oxford)
Organising department:
Institute for New Economic Thinking
Organiser:
Susan Mousley (INET Oxford Admin Team)
Organiser contact email address:
events@inet.ox.ac.uk
Part of:
INET Oxford Researcher Seminars
Booking required?:
Required
Booking url:
https://us02web.zoom.us/meeting/register/tZIofuCorDsvHNwqinGpdPeG9e_m89c4Ujcm
Audience:
Public
Editor:
Susan Mousley
