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Using mean reversion as a measure of persistence

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  • Dias, Daniel A.
  • Marques, Carlos Robalo

Abstract

This paper suggests a new scalar measure of persistence together with a companion estimator, which has the advantage of not requiring the specification and estimation of a model for the series under investigation. The statistical properties of the companion estimator are established, which allow tests of hypotheses to be performed, under very general conditions. The use of the new measure is illustrated by re-evaluating persistence of inflation for the United States and the Euro Area. The conclusions for the United States do not differ significantly from what has been found in previous empirical studies. However, for the Euro Area we find evidence of a significant break occurring in 2001/2002, such that persistence becomes virtually nil for the period that follows the launch of the euro and the implementation of a common monetary policy by the European Central Bank.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 1 (January)
Pages: 262-273

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:262-273

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Persistence Mean reversion Non-parametric estimator;

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