Time-Varying Persistence in US Inflation

Massimiliano Caporin and Rangan Gupta

No 201457, Working Papers from University of Pretoria, Department of Economics

Abstract: The persistence property of inflation is an important issue for not only economists, but, especially for central banks, given that the degree of inflation persistence determines the extent to which central banks can control inflation. Also, not only is the level of inflation persistence that is important in economic analyses, but also the question of whether the persistence varies over time, for instance, across business cycle phases, is equally pertinent, since assuming constant persistence across states of the economy, is sure to lead to misguided policy decisions. Against this backdrop, we extend the literature on long-memory models of inflation persistence for the US economy over the monthly period of 1876:2-2014:5, by developing an autoregressive fractionally integrated moving average-generalized autoregressive conditional heteroskedastic (ARFIMA-GARCH) model, with a time-varying memory coefficient which varies across expansions and recessions. In sum, we find that, inflation persistence does vary across recessions and expansions, with it being significantly higher in the former than in the latter. As an aside, we also show that, persistence of inflation volatility however, is higher during expansions than in recessions. Understandably, our results have important policy implications.

Keywords: Persistence; US Inflation Rate; Time-Varying Long Memory (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 C51 E31 E52 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2014-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Time-varying persistence in US inflation (2017)
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:pre:wpaper:201457

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().