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Has trend inflation shifted?: An empirical analysis with an equally-spaced regime-switching model

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  • Kaihatsu, Sohei
  • Nakajima, Jouchi

Abstract

This paper proposes a new econometric framework for estimating trend inflation and the slope of the Phillips curve with a regime-switching model. A unique aspect of our approach is to assume equally-spaced regimes. In our baseline model, we specify regimes for the trend inflation at one-percent intervals. This framework serves as a parsimonious trend inflation model, and the estimated probability of the trend inflation being in each regime provides an easily interpretable illustration in policy debate and analysis. An empirical result for the United States shows a considerably stable trend inflation at two percent since the late 1990s. A result for Japan indicates that the 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 in 2013.

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  • Kaihatsu, Sohei & Nakajima, Jouchi, 2018. "Has trend inflation shifted?: An empirical analysis with an equally-spaced regime-switching model," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 69-83.
    • Handle: RePEc:eee:ecanpo:v:59:y:2018:i:c:p:69-83
    DOI: 10.1016/j.eap.2018.04.003
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    3. NAKAJIMA, Jouchi, 2023. "Estimation of firms' inflation expectations using the survey DI," Discussion Paper Series 749, Institute of Economic Research, Hitotsubashi University.
    4. Kosuke Aoki & Ko Munakata & Nao Sudo, 2019. "Prolonged Low Interest Rates and Banking Stability," IMES Discussion Paper Series 19-E-21, Institute for Monetary and Economic Studies, Bank of Japan.
    5. Takatoshi Ito, 2021. "An Assessment of Abenomics: Evolution and Achievements," Asian Economic Policy Review, Japan Center for Economic Research, vol. 16(2), pages 190-219, July.
    6. Masahiko Shibamoto, 2023. "Inflation, Business Cycle, and Monetary Policy: The Role of Inflationary Pressure," Discussion Paper Series DP2023-04, Research Institute for Economics & Business Administration, Kobe University.
    7. Ryuzo Miyao & Tatsuyoshi Okimoto, 2020. "Regime shifts in the effects of Japan’s unconventional monetary policies," Manchester School, University of Manchester, vol. 88(6), pages 749-772, December.
    8. Yui Kishaba & Tatsushi Okuda, 2023. "The Slope of the Phillips Curve for Service Prices in Japan: Regional Panel Data Approach," Bank of Japan Working Paper Series 23-E-8, Bank of Japan.

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    More about this item

    Keywords

    Phillips curve; Regime-switching model; Trend inflation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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