A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach

Gabriel Zsurkis, JoÃo Nicolau and Paulo Rodrigues

Oxford Bulletin of Economics and Statistics, 2021, vol. 83, issue 4, 935-959

Abstract: This paper introduces a simple and easy to implement procedure to test for changes in persistence. The time‐varying parameter that characterizes persistence changes under the alternative hypothesis is approximated by a parsimonious cosine function. The new test is the minimum of a t‐statistic computed from a test regression that considers a set of reasonable values for a frequency term that is used to evaluate the time‐varying properties of persistence. The asymptotic distributions of the new tests are derived and critical values are provided. An in‐depth Monte Carlo analysis shows that the new procedure has important power gains when compared to the local Generalized Least Squares (GLS) de‐trended Dickey–Fuller type tests under various data generating processes with persistence changes. Moreover, an empirical application to OECD countries’ inflation shows that for most series analysed persistence was high in the first half of the sample and subsequently decreased. These results conform with modern macroeconomic theories that point to changes in inflation dynamics in the early 1980s and also with recent empirical evidence against the I(1)−I(0) dichotomy.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/obes.12419

Related works:
Working Paper: A reexamination of inflation persistence dynamics in OECD countries: A new approach (2019)
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:bla:obuest:v:83:y:2021:i:4:p:935-959

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0305-9049

Access Statistics for this article

Oxford Bulletin of Economics and Statistics is currently edited by Christopher Adam, Anindya Banerjee, Christopher Bowdler, David Hendry, Adriaan Kalwij, John Knight and Jonathan Temple

More articles in Oxford Bulletin of Economics and Statistics from Department of Economics, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().