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

Giorgio Canarella and Stephen Miller

No 2016-21, Working papers from University of Connecticut, Department of Economics

Abstract: We investigate the empirics of persistence in the inflation series for 13 OECD countries that explicitly adopted an inflation targeting (IT) regime before 1992. We estimate persistence in the pre- and post-IT periods using the modified log periodogram proposed by Kim and Phillips (2006, 2000) and Phillips (2007) and test for equality across the two periods. Our findings indicate that all inflation series show no evidence of unit-root behavior over the entire sample, and in the respective pre- and post-IT periods. Mean reversion and stationarity as well as mean reversion and nonstationarity exist in the pre-IT period, while mean reversion and stationarity characterize the post-IT period. Inflation exhibits fractional integration behavior over the entire sample period, the pre-IT period, and, in most cases, also in the post-IT period. The adoption of inflation targeting coincides with a structural break in all inflation series and marks a decrease in the point estimates of inflation persistence in most countries. For only about half of the countries, however, we can formally reject the null hypothesis of equality of inflation persistence against the alternative that inflation persistence declines in the post-IT period. Significant variations and asymmetries exist in inflation persistence across the countries in the sample, suggesting that the IT regime does not equalize persistence across the IT countries.

Keywords: persistence; modified log periodogram; inflation targeting; fractional integration (search for similar items in EconPapers)
JEL-codes: C14 C22 E31 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2016-09
New Economics Papers: this item is included in 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 (16)

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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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