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Long memory and level shifts: Re-analyzing inflation rates

Philip Hans Franses, Marius Ooms () and Charles Bos ()

Empirical Economics, 1999, vol. 24, issue 3, 427-449

Abstract: A key application of long memory time series models concerns inflation. Long memory implies that shocks have a long-lasting effect. It may however be that empirical evidence for long memory is caused by neglecting one or more level shifts. Since such level shifts are not unlikely for inflation, where the shifts may be caused by sudden oil price shocks, we examine whether evidence for long memory (indicated by the relevance of an ARFIMA model) in G7 inflation rates is spurious or exaggerated. Our main findings are that apparent long memory is quite resistant to level shifts, although for a few inflation rates we find that evidence for long memory disappears.

Keywords: Long; memory; ·; fractional; integration; ·; structural; change; ·; inflation (search for similar items in EconPapers)
JEL-codes: C22 E31 (search for similar items in EconPapers)
Date: 1999-08-16
Note: received: March 1998/final version received: October 1998
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Working Paper: Long memory and level shifts: re-analysing inflation rates (1998) Downloads
Working Paper: Long Memory and Level Shifts: Re-Analyzing Inflation Rates (1998) Downloads
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