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Asymmetric inflation dynamics: Evidence from quantile regression analysis

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  • Tsong, Ching-Chuan
  • Lee, Cheng-Feng

Abstract

This paper applies the regression quantile approach developed by Koenker and Xiao (2004) to investigate the dynamic behavior of inflation in 12 OECD countries. By analyzing the behavior in a wide range of quantiles, this method allows us to quantify the influence of various sizes of shocks that hit the inflation, and is able to capture possible asymmetric adjustment of the inflation towards to its long-run equilibrium. It therefore sheds new lights on the inflation dynamics compared with the conventional unit root methodologies. Our results suggest that generally, the inflation rates are not only mean-reverting but also exhibit asymmetries in their dynamic adjustments, in which large negative shocks tend to induce strong mean reversion, and on the contrary, large positive shocks do not. Policy implications related to the empirical findings are also provided.

Suggested Citation

  • Tsong, Ching-Chuan & Lee, Cheng-Feng, 2011. "Asymmetric inflation dynamics: Evidence from quantile regression analysis," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 668-680.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:668-680
    DOI: 10.1016/j.jmacro.2011.08.003
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    More about this item

    Keywords

    Inflation rate; Quantile regression;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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