Stochastic simulations are used on the Liverpool Model of the UK to assess the effect of UK euro entry on macroeconomic stability. Instability increases substantially, particularly for inflation and real interest rates. A key factor is the extent of the euro's instability against the dollar; by adopting a regional currency the UK imports this source of shocks, as well as losing its control of interest rates. The results are not highly sensitive to changes in assumptions about the degree of labour market flexibility, the use of fiscal policy, and increased convergence of monetary transmission.

Exchange-rate flexibility

Liberian dollar

Source

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Does inattentiveness matter for DSGE modeling? An empirical investigation

Economic Modelling (2022)

Jen-Yu Chou Joshy Easaw Patrick Minford

The purpose of this paper is to investigate the empirical performance of the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model in its usual form with full-information rational expectations and compare it with versions assuming inattentiveness—namely sticky information and imperfect information data revision. Using a Bayesian estimation approach on US quarterly data (both real-time and survey) from 1969 to 2015, we find that the model with sticky information fits best and is the only one that can generate the delayed responses observed in the data. The imperfect information data revision model is improved fits better when survey data is used in place of real-time data, suggesting that it contains extra information.

Perfect information

New Keynesian economics

Bayes estimator

Bayesian information criterion

Survey data collection

10.1016/j.econmod.2022.106076

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A structural model of coronavirus behaviour for testing on data behaviour

Applied Economics (2021)

David Meenagh Patrick Minford

We fit the logistic function, the reduced form of epidemic behaviour, to the data for deaths from Covid-19, for a wide variety of countries, with a view to estimating a causal model of the Covid virus' progression. We then set up a structural model of the Covid virus behaviour based on evolutionary biology and social household behaviour; we estimated and tested this by indirect inference, matching its simulated logistic behaviour to that found in the data. In our model, the virus' progression depends on the interaction of strategies by household agents, the government and the virus itself as programmed by evolution. Within these interactions, it turns out that there is substitution between government topdown direction (such as lockdown) and social reaction to available information on the virus' behaviour. We also looked at the experience of second waves, where we found that countries successfully limited second waves when they had had longer first waves and followed policies of localized reaction in the second.

Logistic function

Indirect Inference

10.1080/00036846.2021.1883531

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British inflation and unemployment in the 1970s: a model-based decomposition

Applied Economics (1996)

Kent Matthews Patrick Minford

The UKs stagflation in the 1970s is decomposed into its causative factors, using the Liverpool rational expectations model. It is found that there was a large rise in the natural rate of unemployment, mainly due to rising union density; that fiscal and monetary shocks had little effect on the resulting rise in unemployment; and the high inflation of the period was due to persistent and large fiscal deficits, with their accompanying monetization. Mrs Thatcher inherited an inflation induced by an ongoing deficit and a natural rate of over 2 million unemployed.

Monetization

Stagflation

Misery index

Adaptive expectations

Deflation

10.1080/00036849600000013

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