The Persistence of Inflation in OECD Countries: A Fractionally Integrated Approach

María Gadea () and Laura Mayoral

MPRA Paper from University Library of Munich, Germany

Abstract: The statistical properties of inflation and, in particular, its degree of persistence and stability over time is a subject of intense debate, and no consensus has been achieved yet. The goal of this paper is to analyze this controversy using a general approach, with the aim of providing a plausible explanation for the existing contradictory results. We consider the inflation rates of twenty-one OECD countries which are modeled as fractionally integrated (FI) processes. First, we show analytically that FI can appear in inflation rates after aggregating individual prices from firms that face different costs of adjusting their prices. Then, we provide robust empirical evidence supporting the FI hypothesis using both classical and Bayesian techniques. Next, we estimate impulse response functions and other scalar measures of persistence, achieving an accurate picture of this property and its variation across countries. It is shown that the application of some popular tools for measuring persistence, such as the sum of the AR coefficients, could lead to erroneous conclusions if fractional integration is present. Finally, we explore the existence of changes in inflation inertia using a novel approach. We conclude that the persistence of inflation is very high (although nonpermanent) in most postindustrial countries and that it has remained basically unchanged over the last four decades.

JEL-codes: G0 G00 (search for similar items in EconPapers)
Date: 2005-12-21
New Economics Papers: this item is included in nep-cba, nep-ets, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in International Journal of Central Banking Number 1.Volume(2006): pp. 51-104

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/815/1/MPRA_paper_815.pdf original version (application/pdf)

Related works:
Working Paper: The Persistence of Inflation in OECD Countries:a Fractionally Integrated Approach (2015)
Journal Article: The Persistence of Inflation in OECD Countries: A Fractionally Integrated Approach (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:815

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().