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Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy

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Author Info
Jan Babecký (Czech National Bank, Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
Fabrizio Coricelli (University of Siena, University of Paris-1 Sorbonne)
Roman Horváth () (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, Czech National Bank)

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Abstract

The paper provides an empirical analysis of inflation persistence in one of the inflation targeting countries, the Czech Republic, using 412 detailed product-level consumer price indexes underlying the consumer basket over the period from 1994:M1 to 2005:M12. Subject to various sensitivity tests, the authors´ results suggest that raw goods and non-durables, followed by services, display smaller inflation persistence than durables and processed goods. Inflation seems to be somewhat less persistent after the adoption of inflation targeting in 1998. There is also evidence for aggregation bias, that is, aggregate inflation is found to be more persistent than the underlying detailed components. Price dispersion, as a proxy for the degree of competition, is found to be negatively related to inflation persistence, suggesting that competition is not conducive to reducing persistence.

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File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1153
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Publisher Info
Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 59 (2009)
Issue (Month): 2 (June)
Pages: 102-127
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Handle: RePEc:fau:fauart:v:59:y:2009:i:2:p:102-127

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Related research
Keywords: inflation dynamics; persistence; inflation targeting;

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

References listed on IDEAS
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    Other versions:
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
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    Other versions:
  4. Julie Smith, 2005. "Inflation targeting and core inflation," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 1018-1036, August. [Downloadable!] (restricted)
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  7. Athanasios Orphanides & John C. Williams, 2003. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Working Papers 9884, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February. [Downloadable!] (restricted)
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  13. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
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  16. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February. [Downloadable!] (restricted)
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  17. Ignazio Angeloni & Luc Aucremanne & Michael Ehrmann & Jordi Galí & Andrew Levin & Frank Smets, 2006. "New Evidence on Inflation Persistence and Price Stickiness in the Euro Area: Implications for Macro Modeling," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 562-574, 04-05. [Downloadable!] (restricted)
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  18. Todd E. Clark, 2006. "Disaggregate evidence on the persistence of consumer price inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(5), pages 563-587. [Downloadable!]
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  19. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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