Long memory and structural change in the G7 inflation dynamics

Mustapha Belkhouja and Imene Mootamri

Economic Modelling, 2016, vol. 54, issue C, 450-462

Abstract: In order to contribute to the inflation persistence debate, we extend the ARFIMA–GARCH model by allowing for time varying baseline mean and volatility using logistic functions. The proposed time-varying ARFIMA–GARCH model is applied to the monthly CPI inflation rates of the seven advanced economies (G7) from 1955 to 2014. The main finding of this study is that neglecting structural changes in the inflation level and volatility appears to overestimate the long run and GARCH persistence. Moreover, the identified shifts in the inflation dynamics are in line with economic and political events that marked the examined period.

Keywords: ARFIMA; GARCH; Long memory; Structural change; Inflation; G7 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:54:y:2016:i:c:p:450-462

DOI: 10.1016/j.econmod.2016.01.021

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