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On the dynamics of inflation persistence around the world

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  • Antonio E. Noriega
  • Manuel Ramos Francia

Abstract

We study the dynamics of inflation persistence in 45 countries for the period 1960-2008. We use a nonparametric unit root test robust to nonlinearities, error distributions, structural breaks and outliers, many of them typical features of inflation data, and a test for multiple changes in persistence, which decomposes the sample information between adjacent I(0) and I(1) periods. We find that (1) With very few exceptions, inflation around the world rejects a unit root, (2) for several countries there is evidence of significant changes in persistence, (3) bursts and drops in the level of inflation and in inflation persistence tend to coincide, (4) these drops occurred during “the Great Moderation” and during the adoption of inflation targeting. We conclude that inflation is characterized by either a stationary behaviour throughout the sample, or by switches of the type I(0)-I(1)-I(0). For all countries in our sample, any indication of nonstationarity seems to be temporary.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7BC0521285-30E1-1548-6CA5-AE22BBF807AF%7D.pdf
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Bibliographic Info

Paper provided by Banco de México in its series Working Papers with number 2009-02.

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Date of creation: Feb 2009
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Handle: RePEc:bdm:wpaper:2009-02

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Web page: http://www.banxico.org.mx
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Keywords: Inflation; Multiple persistence change; Stationarity; Unit root tests; Unknown direction of change; Monetary policy;

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Citations

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Cited by:
  1. Robinson Kruse & Daniel Ventosa-Santaulària & Antonio E. Noriega, 2013. "Changes in persistence, spurious regressions and the Fisher hypothesis," CREATES Research Papers 2013-11, School of Economics and Management, University of Aarhus.
  2. Carlos Capistrán & Raúl Ibarra-Ramírez & Manuel Ramos Francia, 2011. "Exchange Rate Pass-Through to Prices: Evidence from Mexico," Working Papers 2011-12, Banco de México.
  3. Antonio Noriega & Carlos Capistrán & Manuel Ramos-Francia, 2013. "On the dynamics of inflation persistence around the world," Empirical Economics, Springer, vol. 44(3), pages 1243-1265, June.
  4. José Julián Sidaoui & Carlos Capistrán & Daniel Chiquiar & Manuel Ramos Francia, 2009. "A Note on the Predictive Content of PPI over CPI Inflation: The Case of Mexico," Working Papers 2009-14, Banco de México.

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