Inflation in the G7 and the expected time to reach the reference rate: A nonparametric approach

Inês da Cunha Cabral and João Nicolau

International Journal of Finance & Economics, 2022, vol. 27, issue 2, 1608-1620

Abstract: This paper explores the inflation dynamics of the G7 from 1999 to mid‐2018 by determining the expected time so that inflation rates revert to the reference rate. Overall, this research reports four main findings. Firstly, there is evidence that the convergence of inflation to the 2% tends to be slower for negative fluctuations. Secondly, the results hint that sometimes larger deviations are tackled at a higher speed and the flat structures advocate for tolerance bands while also supporting price stickiness. Thirdly, though sharing the same monetary policy, the euro area countries exhibit different patterns of convergence. Fourthly, the cluster hierarchy for negative variations reflects the G7 geographic location.

Date: 2022
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https://doi.org/10.1002/ijfe.2233

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