Inflation dynamics in the US - a nonlinear perspective

Bob Nobay, Ivan Paya () and David Peel

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: A stylized fact of US inflation dynamics is one of extreme persistence and possible unit root behavior. If so, the implications for macroeconomics and monetary policy are somewhat unpalatable. Our econometric analysis proposes a parsimonious representation of the inflation process, the nonlinear ESTAR, rather than the IMA process with time-varying parameters as in Stock and Watson (2007). The empirical results confirm a number of the key features such as regime changes and implicit Federal Reserve inflation targets. We address the issue of whether the source of the Great Moderation can be ascribed to good luck rather than good policy.

Keywords: Unit Root; Inflation persistence; Nonlinear ESTAR. (search for similar items in EconPapers)
JEL-codes: C15 C22 E31 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2007-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://eprints.lse.ac.uk/24499/ Open access version. (application/pdf)

Related works:
Working Paper: Inflation Dynamics in the US -A Nonlinear Perspective (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24499

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