Have We Under-Estimated Inflation Persistence before WW1? US and International Evidence

Stefan Gerlach and Rebecca Stuart

No 20024, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The literature finds that there is little persistence of inflation during the 19th century. However, it is well known that historical price data are measured with varying degrees of error. We use instrumental variables, which is appropriate in the context of measurement error, to estimate the persistence of (a) US inflation and (b) inflation in 14 other economies. Our results indicate that IV estimates of the persistence parameter are about twice as large as simple OLS estimates. Durbin-Hausman-Wu tests suggest that the differences between the IV and OLS estimates are statistically significant.

Keywords: Inflation; persistence (search for similar items in EconPapers)
JEL-codes: E31 F40 N10 (search for similar items in EconPapers)
Date: 2025-03
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