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Long Memory Modelling of Inflation with Stochastic Variance and Structural Breaks

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Author Info
C.S. Bos () (VU University Amsterdam)
S.J. Koopman () (VU University Amsterdam)
M. Ooms () (VU University Amsterdam)

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Abstract

We investigate changes in the time series characteristics of postwar U.S. inflation. In a model-based analysis the conditional mean of inflation is specified by a long memory autoregressive fractionally integrated moving average process and the conditional variance is modelled by a stochastic volatility process. We develop a Monte Carlo maximum likelihood method to obtain efficient estimates of the parameters using a monthly dataset of core inflation for which we consider different subsamples of varying size. Based on the new modelling framework and the associated estimation technique, we find remarkable changes in the variance, in the order of integration, in the short memory characteristics and in the volatility of volatility.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 07-099/4.

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Date of creation: 18 Dec 2007
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Handle: RePEc:dgr:uvatin:20070099

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Related research
Keywords: Time varying parameters; Importance sampling; Monte Carlo simulation; Stochastic Volatility; Fractional Integration;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Grassi, Stefano & Proietti, Tommaso, 2008. "Has the Volatility of U.S. Inflation Changed and How?," MPRA Paper 11453, University Library of Munich, Germany. [Downloadable!]
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