Long Memory and Non-Linearities in International Inflation

Giovanni Caggiano and Efrem Castelnuovo

No 76, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper investigates inflation dynamics in a panel of 20 OECD economies using an approach based on the sample autocorrelation function (ACF). We find that inflation is characterized by long-lasting fluctuations, which are similar across countries and that eventually revert to a potentially time-varying mean. The cyclical and persistent behavior of inflation does not belong to the class of linear autoregressive processes but rather to a more general class of nonlinear and long memory models. Recent theoretical contributions on heterogeneity in price setting and aggregation offer a rationale to our results. Finally, we draw the monetary policy implications of our findings.

Keywords: AutoCorrelation Function; long-memory; inflation persistence; inflation targeting; heavy tails. (search for similar items in EconPapers)
JEL-codes: C22 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-05
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0076

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