New panel tests to assess inflation persistence (original) (raw)
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A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach*
2019
This paper introduces a simple and easy to implement procedure to test for changes in persistence. The time-varying parameter that characterizes persistence changes under the alternative hypothesis is approximated by a parsimonious cosine function. The new test procedure is the minimum of a t-statistic, computed from a test regression that considers a set of reasonable values for a frequency term that is used to evaluate the time varying properties of persistence. The asymptotic distributions of the new tests are derived and critical values are provided. An indepth Monte Carlo analysis shows that the new procedure has important power gains when compared to the local GLS de-trended Dickey-Fuller (DFGLS) type tests introduced by Elliott et al. (1996) under various data generating processes with persistence changes. Moreover, an empirical application to OECD countries’ inflation series shows that for most countries analysed persistence was high in the first half of the sample and subse...
Inflation persistence and change in inflation persistence: An international study1
We study the behaviour of inflation in 39 countries for the period 1960-2007, by testing for the presence of fixed persistence, as well as changes in persistence. We use a nonparametric unit root test robust to nonlinearities, error distrib- utions, structural breaks and outliers, all of them typical features of inflation data, and a test for (possibly) multiple changes in persistence, which decom- poses the sample information between adjacent I(0) and I(1) periods. We find that (1) inflation around the world rejects a unit root, (2) in some countries inflation switches from stationary to nonstationary periods (3) drops in the level of inflation and in inflation persistence coincide, (4) these drops occurred during "the Great Moderation" for several countries and during the adoption of inflation targeting for others, (5) for countries with persistence changes, the identified I(1) regimes correspond to a higher level of inflation. We conclude that inflation is characterized...
On the dynamics of inflation persistence around the world
Empirical Economics, 2013
La serie de Documentos de Investigación del Banco de México divulga resultados preliminares de trabajos de investigación económica realizados en el Banco de México con la finalidad de propiciar el intercambio y debate de ideas. El contenido de los Documentos de Investigación, así como las conclusiones que de ellos se derivan, son responsabilidad exclusiva de los autores y no reflejan necesariamente las del Banco de México.
The dynamics of inflation: a study of a large number of countries
Applied Economics, 2012
Over the last twenty years the statistical properties of inflation persistence has been the subject of intense investigation and debate without reaching a unanimous conclusion yet. In this paper we attempt to shed further light to this debate using a battery of econometric techniques in order to provide robust evidence on the degree of inflation persistence and whether this has changed during the period in which several countries have followed inflation-targeting regimes or new monetary regimes. We consider the inflation rates of thirty developed and emerging economies using quarterly data for the period 1958-2007 which include alternative monetary policy regimes. The coefficient of the inflation parameter is estimated by OLS, ARMA and ARFIMA models. Furthermore, the grid-bootstrap median unbiased estimator approach developed by Hansen (1999) is used to estimate the finite sample OLS estimates coupled with the 95% percent symmetric confidence interval. We also examine parameter stability of persistence coefficients by estimating a model with time-varying parameters and we provide evidence that the AR coefficient has remained, in most cases and for several periods, high, although there is a tendency for lower inflation persistence in the late 1990s and during the 2000s and this downturn may be the result of a shift in monetary policy. This finding is more evident for the case of the EMU countries, since the adoption of the euro.
2015
When it comes to measuring inflation persistence, a common practice in empirical research is to estimate univariate autoregressive moving average (ARMA) time series models and measure persistence as the sum of the estimated AR coefficients. We examine four potential sources of lag dynamics in inflation: the evolution of policymakers willingness to stabilize output, shifts in the mean inflation rate, imperfect credibility and learning and unemployment persistence. We show that the reduced-form solution for inflation in all these models have an ARMA(p,q) representation. By implication estimating a reduced-form for inflation will not be able to distinguish among these alternative hypotheses. We illustrate this using US and UK data.
Change in persistence tests for panels
2007
In this paper we propose a set of new panel tests to detect changes in persistence. These statistics are used to test the null hypothesis of stationarity against the alternative of a change in persistence from I(0) to I(1) or viceversa. Alternative of unknown direction is also considered. The limiting distributions of the panel tests are derived and small sample properties are investigated by Monte Carlo experiments under the hypothesis that the individual series are cross-sectionally independently distributed. These tests have a good size and power properties. Cross-sectional dependence is also considered. A procedure of de-factorizing proposed by Stock and Watson is applied. Monte Carlo analysis is conducted and the defactored panel tests show to have good size and power. The empirical results obtained from applying these tests to a panel covering 15 European countries between 1970 and 2006 suggest that inflation rate changes from I(1) to I(0) when cross-correlation is considered. 1 1. E[µ i ] = 0; Under the alternative hypothesis, following Harvey et al. (2006), we modify the tests (21), (22) and (23) by introducing J N,min := min τ ∈(0,1)