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Nonlinear Inflationary Persistence and Growth: Theory and Empirical Comparative Analysis

Author

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  • Charemza, Wojciech

    (University of Leicester, UK)

  • Makarova, Svetlana

    (University College London, UK)

Abstract

The paper focuses on the decomposition of inflation persistence into the linear and nonlinear components. The hypothesis is that the nonlinear component of inflation persistence results from a technological shock and might positively contribute to economic growth. The microfoundations are derived from an assumption of Calvo pricing and sticky-information Keynesian Phillips curve. The hypothesis is evaluated empirically with the use of monthly data series for inflation for 119 countries. Linear and nonlinear (bilinear) inflation persistence measures have been estimated with the use of a bilinear autoregressive moving average model in a state space form. Further on, correlation analysis has been performed for these countries to detect a relationship between economic growth and linear and nonlinear persistence. The paper concludes that the nonlinear inflation persistence contributes positively to economic growth after 2000.

Suggested Citation

  • Charemza, Wojciech & Makarova, Svetlana, 2009. "Nonlinear Inflationary Persistence and Growth: Theory and Empirical Comparative Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 5-22, June.
    • Handle: RePEc:rjr:romjef:v:6:y:2009:i:2:p:5-22
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Nadim Hanif & Muhammad Jahanzeb Malik & Javed Iqbal, 2016. "Intrinsic Inflation Persistence in a Developing Country," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 19-42.
    2. Imran H. Shah & Ian Corrick & Abdul Saboor, 2018. "How should Central Banks Respond to Non-neutral Inflation Expectations?," Open Economies Review, Springer, vol. 29(2), pages 321-351, April.
    3. Andrew Phiri, 2012. "Threshold effects and inflation persistence in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 4(3), pages 247-269, July.
    4. Muhammad Farooq Arby & Amjad Ali, 2017. "Threshold Inflation in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 13, pages 1-19.
    5. Muhammad Nadim Hanif & Javed Iqbal & Imran Naveed Khan, 2017. "Global Commodity Prices and Domestic Inflation: A Case Study of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 13, pages 21-51.

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    More about this item

    Keywords

    inflation; growth; bilinear processes;
    All these keywords.

    JEL classification:

    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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