Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US
Giorgio Canarella and
Stephen Miller ()
No 2016-21, Working papers from University of Connecticut, Department of Economics
We investigate the empirics of persistence in the inflation series for 13 OECD countries that explicitly adopted an inflation targeting (IT) regime before 1992. We estimate persistence in the pre- and post-IT periods using the modified log periodogram proposed by Kim and Phillips (2006, 2000) and Phillips (2007) and test for equality across the two periods. Our findings indicate that all inflation series show no evidence of unit-root behavior over the entire sample, and in the respective pre- and post-IT periods. Mean reversion and stationarity as well as mean reversion and nonstationarity exist in the pre-IT period, while mean reversion and stationarity characterize the post-IT period. Inflation exhibits fractional integration behavior over the entire sample period, the pre-IT period, and, in most cases, also in the post-IT period. The adoption of inflation targeting coincides with a structural break in all inflation series and marks a decrease in the point estimates of inflation persistence in most countries. For only about half of the countries, however, we can formally reject the null hypothesis of equality of inflation persistence against the alternative that inflation persistence declines in the post-IT period. Significant variations and asymmetries exist in inflation persistence across the countries in the sample, suggesting that the IT regime does not equalize persistence across the IT countries.
Keywords: persistence; modified log periodogram; inflation targeting; fractional integration (search for similar items in EconPapers)
JEL-codes: C14 E31 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Note: Stephen Miller is the corresponding author
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Journal Article: Inflation persistence and structural breaks: the experience of inflation targeting countries and the US (2016)
Working Paper: Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2016-21
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