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Adaptive ARFIMA models with applications to inflation

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  • Baillie, Richard T.
  • Morana, Claudio

Abstract

Many previous analyses of inflation have used either long memory or nonlinear time series models. This paper suggests a simple adaptive modification of the basic ARFIMA model, which uses a flexible Fourier form to allow for a time varying intercept. Simulation evidence suggests that the model provides a good representation of various forms of structural breaks and also that the new model can be efficiently estimated by a QMLE approach. We investigate monthly CPI inflation series for the G7 countries and find evidence of stable long memory parameters across regimes and also of significant nonlinear effects. The estimated adaptive ARFIMA models generally have less persistent long memory parameters than previous studies, with the estimated time dependent intercept being an important component. The model is also supplemented with an adaptive FIGARCH component, yielding a double nonlinear long memory model.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 6 ()
Pages: 2451-2459

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:6:p:2451-2459

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

Related research

Keywords: ARFIMA; FIGARCH; Long memory; Structural change; Inflation; G7;

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References

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Cited by:
  1. Claudio Morana, 2013. "Factor Vector Autoregressive Estimation of Heteroskedastic Persistent and Non Persistent Processes Subject to Structural Breaks: New Insights on the US OIS SPreads Term Structure," Working Papers, University of Milano-Bicocca, Department of Economics 233, University of Milano-Bicocca, Department of Economics, revised Feb 2013.
  2. Karim Abadir & Giovanni Caggiano & Gabriel Talmain, 2005. "Nelson-Plosser Revisited: the ACF Approach," Working Papers, Business School - Economics, University of Glasgow 2005_7, Business School - Economics, University of Glasgow.

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