Persistence in Inflation: Does Aggregation Cause Long Memory?
Emerging Markets Finance and Trade, 2004, vol. 40, issue 5, 25-56
This paper examines persistence in Turkish inflation rates using data from consumer and wholesale price indices. The inflationary process in Turkey is believed to be highly inertial, which should lead to strongly persistent inflation series. Persistence of seventy-five inflation series at various aggregation levels is examined by estimating models that allow long memory through fractional differencing. The order of fractional differencing is estimated using several semiparametric and maximum likelihood methods. Persistence of each series is evaluated using the time required for a given percentage of the effect of a shock to dissipate. We find that disaggregate inflation series show no significant persistence. We found that only twelve out of seventy-five series require more than six months for 99 percent of the effect of a shock to dissipate. Thus, the paper finds evidence of spurious long memory due to aggregation.
Keywords: aggregation; fractional differencing; inflation; inertia; long memory models; persistence (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:40:y:2004:i:5:p:25-56
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