Inflation persistence and change in inflation persistence: An international study1 (original) (raw)
Related papers
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.
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...
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.
SSRN Electronic Journal, 2014
This paper reports on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the US, a non IT country with a history of credible monetary policy. First, we estimate inflation persistence in a rolling-window fractional integration setting using the semiparametric estimator suggested by Phillips (2007). Second, we use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. We use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. These results suggest that four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the US experience a structural break in inflation persistence that coincides with the global financial crisis. Finally, we reapply the Phillips (2007) estimator to the subsamples defined by the breaks. We find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity.
Dynamics of Persistence in International Inflation Rates
Journal of Money, Credit and Banking, 2007
Characteristics of inflation play a key role in policy formulation and market analysis. Several studies have analyzed inflation persistence and reached diverging conclusions. In this paper, we investigate the dynamics of inflation persistence using fractionally integrated processes and find that there has been a clear decline in inflation persistence in the United States over the past two decades. We also show that the presence of fractional integration in inflation successfully explains previous diverging results. Lastly, we provide some international comparisons to examine the extent to which there has been a commensurate decline in inflation persistence in the other G7 economies.
Estimating inflation persistence by quantile autoregression with quantile-specific unit roots
Economic Modelling, 2018
In this paper we study inflation persistence, which is a key feature of inflation dynamics, related to how quickly a stationary inflation process reverts to its long-run equilibrium after a shock. Emerging economies with high inflation persistence need to adjust macroeconomic policies in a significant way to price shocks (e.g., at the cost of substantial output decrease), since these shocks can affect expectations and inflation for a much longer period. We propose a novel way to estimate inflation persistence by using a quantile autoregression (QAR) model, which allows for asymmetric dynamics and quantile-specific unit roots. An empirical exercise with Brazilian data from January 1995 to May 2017 illustrates the method. The results indicate that inflation is globally stationary, but exhibits non-stationary behavior in 28% of the observations. In addition, shocks occurring when inflation is higher seem to have greater dissipation time compared to shocks that occur when inflation is lower.
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.