Long memory and level shifts: re-analysing inflation rates

Philip Hans Franses, Marius Ooms and Charles Bos

No EI 9811, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

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: inflation rates; level shifts; long memory time series models (search for similar items in EconPapers)
Date: 1998-07-02
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Related works:
Journal Article: Long memory and level shifts: Re-analyzing inflation rates (1999)
Working Paper: Long Memory and Level Shifts: Re-Analyzing Inflation Rates (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:1556

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