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The dynamics of inflation: a study of a large number of countries

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Abstract:

Over the last twenty years the statistical properties of inflation persistence has been the subject of intense investigation and debate without reaching a unanimous conclusion yet. In this article we attempt to shed further light to this debate using a battery of econometric techniques in order to provide robust evidence on the degree of inflation persistence and whether this has changed during the period in which several countries have followed inflation-targeting regimes or new monetary regimes. We consider the inflation rates of thirty developed and emerging economies using quarterly data for the period 1958 to 2007 which include alternative monetary policy regimes. The coefficient of the inflation parameter is estimated by Ordinary Least Squares (OLS), Autoregressive Moving Average (ARMA) and Autoregressive Fractionally Integrated Moving Average (ARFIMA) models. Furthermore, the grid-bootstrap Median Unbiased (MUB) estimator approach developed by Hansen (1999) is used to estimate the finite sample OLS estimates coupled with the 95% symmetric confidence interval. We also examine parameter stability of persistence coefficients by estimating a model with time-varying parameters.

Keywords: C22; E31; inflation dynamics; monetary policy; persistence; recursive estimation; rolling regression ; time-varying coefficients

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.556596

Affiliations: 1: Department of Business Administration,Athens University of Economics and Business, 76 Patission StreetGR-10434, Athens, Greece 2: Department of Economics,Mammel Hall 332S, University of Nebraska at Omaha, Omaha,NE 68182-0286, USA

Publication date: June 1, 2012

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