Can Univariate Time Series Models of Inflation Help Discriminate Between Alternative Sources of Inflation PersistenceAuthor-Name: Naveen Srinivasan

Pankaj Kumar ()
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Pankaj Kumar: Madras School of Economics
Authors registered in the RePEc Author Service: Naveen Srinivasan

Working Papers from Madras School of Economics,Chennai,India

Abstract: 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.

Keywords: Inflation Persistence; Identification; Kalman Filter (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-05
New Economics Papers: this item is included in nep-ets, nep-mac and nep-mon
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