Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US

Giorgio Canarella and Stephen Miller

No 2016-11, Working papers from University of Connecticut, Department of Economics

Abstract: 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.

Keywords: inflation persistence; inflation targeting; fractional integration; rolling window estimation; structural breaks (search for similar items in EconPapers)
JEL-codes: C14 C22 E31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Stephen Miller is the corresponding author
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2016-11

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