Has Trend Inflation Shifted?: An Empirical Analysis with a Regime-Switching Model

Sohei Kaihatsu and Jouchi Nakajima

No 15-E-3, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper proposes a new econometric framework for estimating trend inflation and the slope of the Phillips curve with a regime-switching model. As a unique aspect of our approach, we assume regimes for the trend inflation at one-percent intervals, and estimate the probability of the trend inflation being in each regime. The trend inflation described in the discrete manner provides for an easily interpretable explanation of estimation results as well as a robust estimate. An empirical result indicates that Japan's trend inflation stayed at zero percent for about 15 years after the late 1990s, and then shifted away from zero percent after the introduction of the price stability target and the quantitative and qualitative monetary easing. The U.S. result shows a considerably stable trend inflation at two percent since the late 1990s.

Keywords: Phillips curve; Regime-switching model; Trend inflation (search for similar items in EconPapers)
JEL-codes: C22 E31 E42 E52 E58 (search for similar items in EconPapers)
Date: 2015-05-01
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:wp15e03

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