Advanced Search
MyIDEAS: Login to save this paper or follow this series

Measuring inflation persistence: a structural time series approach

Contents:

Author Info

  • Dossche, Maarten
  • Everaert, Gerdie

Abstract

Time series estimates of inflation persistence incur an upward bias if shifts in the inflation target of the central bank remain unaccounted for. Using a structural time series approach we measure different sorts of inflation persistence allowing for an unobserved time-varying inflation target. Unobserved components are identified using Kalman filtering and smoothing techniques. Posterior densities of the model parameters and the unobserved components are obtained in a Bayesian framework based on importance sampling. We find that inflation persistence, expressed by the half-life of a shock, can range from 1 quarter in case of a cost-push shock to several years for a shock to long-run inflation expectations or the output gap. JEL Classification: C11, C13, C22, C32, E31

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp495.pdf
Download Restriction: no

Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0495.

as in new window
Length:
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050495

Contact details of provider:
Postal: Postfach 16 03 19, Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/home/html/index.en.html
More information through EDIRC

Order Information:
Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Email:

Related research

Keywords: Bayesian Analysis; Inflation persistence; inflation target; Kalman filter;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. P.A. Tinsley & Sharon Kozicki, 2004. "Permanent and Transitory Policy Shocks in an Empirical Macro Model with Asymmetric Information," Computing in Economics and Finance 2004 146, Society for Computational Economics.
  2. Bruno Merlevede & Koen Schoors, 2005. "How to Catch Foreign Fish? FDI and Privatization in EU Accession Countries," William Davidson Institute Working Papers Series wp785, William Davidson Institute at the University of Michigan.
  3. A. Heirman & B. Clarysse, 2005. "The imprinting effect of initial resources and market strategy on the early growth path of start-Ups," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/310, Ghent University, Faculty of Economics and Business Administration.
  4. A. Maes & G. Poels & F. Gailly & R. Paemeleire, 2005. "Measuring User Beliefs and Attitudes towards Conceptual Models: A Factor and Structural Equation Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/311, Ghent University, Faculty of Economics and Business Administration.
  5. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
  6. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
  7. O'Reilly,Gerard & Whelan, Karl, 2004. "Has Euro-Area Inflation Persistence Changed Over Time?," Research Technical Papers 4/RT/04, Central Bank of Ireland.
  8. Timothy Cogley & Thomas J. Sargent, 2003. "Drifts and volatilities: monetary policies and outcomes in the post WWII U.S," Working Paper 2003-25, Federal Reserve Bank of Atlanta.
  9. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  10. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  11. V. Vansteeger, 2005. "The current state of accounting harmonization: impediments to and benefits from harmonization," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/322, Ghent University, Faculty of Economics and Business Administration.
  12. Gerlach, Stefan & Smets, Frank, 1999. "Output gaps and monetary policy in the EMU area1," European Economic Review, Elsevier, vol. 43(4-6), pages 801-812, April.
  13. Kevin J. Lansing & Bharat Trehan, 2003. "Forward-looking behavior and optimal discretionary monetary policy," Working Paper Series 2001-03, Federal Reserve Bank of San Francisco.
  14. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  15. B. Maenhout & M. Vanhoucke, 2005. "An Electromagnetic Meta-Heuristic for the Nurse Scheduling Problem," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/316, Ghent University, Faculty of Economics and Business Administration.
  16. Claeys, Sophie & Lanine, Gleb & Schoors, Koen, 2005. "Bank supervision Russian style: Rules versus enforcement and tacit objectives," BOFIT Discussion Papers 10/2005, Bank of Finland, Institute for Economies in Transition.
  17. P. Windels & J. Christiaens, 2005. "Management Reform in Flemish Local Authorities: Testing the Institutional Framework," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/331, Ghent University, Faculty of Economics and Business Administration.
  18. E. Labro & M. Vanhoucke, 2005. "A simulation analysis of interactions between errors in costing system design," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/333, Ghent University, Faculty of Economics and Business Administration.
  19. B. Weijters & M. Geuens & S. Dewitte, 2005. "Evaluation of age-related labels by senior citizens," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/320, Ghent University, Faculty of Economics and Business Administration.
  20. S. J. Koopman & J. Durbin, 2003. "Filtering and smoothing of state vector for diffuse state-space models," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(1), pages 85-98, 01.
  21. I. Vermeir & M. Geuens, 2005. "Need for Closure and Youngsters’ Leisure Time Preferences," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/318, Ghent University, Faculty of Economics and Business Administration.
  22. John C. Williams & Athanasios Orphanides, 2004. "The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning, and Expectations," Computing in Economics and Finance 2004 144, Society for Computational Economics.
  23. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
  24. G. Poels & F. Gailly & A. Maes & R. Paemeleire, 2005. "Object Class or Association Class? Testing the User Effect on Cardinality Interpretation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/323, Ghent University, Faculty of Economics and Business Administration.
  25. Vandevoorde, S. & Vanhoucke, M., 2005. "A comparison of different project duration forecasting methods using earned value metrics," Vlerick Leuven Gent Management School Working Paper Series 2005-16, Vlerick Leuven Gent Management School.
  26. Knockaert, M. & Lockett, A. & Clarysse, B. & Wright, M., 2005. "Do human capital and fund characteristics drive follow-up behaviour of early stage high tech vcs?," Vlerick Leuven Gent Management School Working Paper Series 2005-20, Vlerick Leuven Gent Management School.
  27. A. Karas & K. Schoors, 2005. "Heracles or Sisyphus? Finding, cleaning and reconstructing a database of Russian banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/327, Ghent University, Faculty of Economics and Business Administration.
  28. Rodriguez-Palenzuela, Diego & Castelnuovo, Efrem & Nicoletti-Altimari, Sergio, 2003. "Definition of price stability, range and point inflation targets: the anchoring of long-term inflation expectations," Working Paper Series 0273, European Central Bank.
  29. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-39, November.
  30. Galí, Jordi & Gertler, Mark & López-Salido, J David, 2001. "European Inflation Dynamics," CEPR Discussion Papers 2684, C.E.P.R. Discussion Papers.
  31. L. Pozzi, 2005. "Income Uncertainty and Aggregate Consumption," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/334, Ghent University, Faculty of Economics and Business Administration.
  32. W. Buckinx & D. Van Den Poel, 2005. "Assessing and exploiting the profit function by modeling the net impact of targeted marketing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/330, Ghent University, Faculty of Economics and Business Administration.
  33. Koopman, S.J.M. & Durbin, J., 1998. "Fast Filtering and Smoothing for Multivariate State Space Models," Discussion Paper 1998-18, Tilburg University, Center for Economic Research.
  34. Thomas Laubach and John C. Williams, 2001. "Measuring the Natural Rate of Interest," Computing in Economics and Finance 2001 35, Society for Computational Economics.
  35. W. Bruggeman & P. Everaert & S. R. Anderson & Y. Levant, 2005. "Modeling Logistics Costs using Time-Driven ABC: A Case in a Distribution Company," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/332, Ghent University, Faculty of Economics and Business Administration.
  36. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1326-1358, April.
  37. Pantula, Sastry G, 1991. "Asymptotic Distributions of Unit-Root Tests When the Process Is Nearly Stationary," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 63-71, January.
  38. English William B. & Nelson William R. & Sack Brian P., 2003. "Interpreting the Significance of the Lagged Interest Rate in Estimated Monetary Policy Rules," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-18, April.
  39. Baeyens, K. & Vanacker, T. & Manigart, M., 2005. "Venture capitalists' selection process: the case of biotechnology proposals," Vlerick Leuven Gent Management School Working Paper Series 2005-17, Vlerick Leuven Gent Management School.
  40. Timothy Cogley & Thomas J. Sargent, 2002. "Evolving Post-World War II U.S. Inflation Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 331-388 National Bureau of Economic Research, Inc.
  41. A. Schollaert & D. Van De Gaer, 2005. "Boycotts, power politics or trust building: how to prevent conflict?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/308, Ghent University, Faculty of Economics and Business Administration.
  42. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
  43. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  44. David Andolfatto & Scott Hendry & Kevin Moran, 2004. "Inflation Expectations and Learning about Monetary Policy," DNB Staff Reports (discontinued) 121, Netherlands Central Bank.
  45. L. Pozzi, 2005. "Income uncertainty and aggregate consumption," Working Paper Research 77, National Bank of Belgium.
  46. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May.
  47. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  48. G. Lanine & R. Vander Vennet, 2005. "Failure prediction in the Russian bank sector with logit and trait recognition models," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/329, Ghent University, Faculty of Economics and Business Administration.
  49. Durbin, James & Koopman, Siem Jan, 2001. "Time Series Analysis by State Space Methods," OUP Catalogue, Oxford University Press, number 9780198523543.
  50. Glenn D. Rudebusch, 2002. "Assessing the Lucas critique in monetary policy models," Working Paper Series 2002-02, Federal Reserve Bank of San Francisco.
  51. M. Vanhoucke & S. Vandevoorde, 2005. "A simulation and evaluation of earned value metrics to forecast the project duration," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/317, Ghent University, Faculty of Economics and Business Administration.
  52. Andrew Levin & Jeremy Piger, 2003. "Is Inflation Persistence Intrinsic in Industrial Economies?," Computing in Economics and Finance 2003 298, Society for Computational Economics.
  53. P. Everaert & G. Sarens, 2005. "Outsourcing bij Vlaamse Ondernemingen: een Exploratief Onderzoek," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/306, Ghent University, Faculty of Economics and Business Administration.
  54. Tetlow, Robert J. & von zur Muehlen, Peter, 2001. "Simplicity versus optimality: The choice of monetary policy rules when agents must learn," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 245-279, January.
  55. Jeffery D. Amato & Thomas Laubach, 1999. "The value of interest rate smoothing : how the private sector helps the Federal Reserve," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 47-64.
  56. Raf Wouters & Frank Smets, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
  57. Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January.
  58. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  59. N. Geeroms & P. Van Kenhove & W. Verbeke, 2005. "Health Advertising to promote Fruit and Vegetable Intake: Application of need-related Health Audience Segmentation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/336, Ghent University, Faculty of Economics and Business Administration.
  60. Bauwens, Luc & Lubrano, Michel & Richard, Jean-Francois, 2000. "Bayesian Inference in Dynamic Econometric Models," OUP Catalogue, Oxford University Press, number 9780198773139.
  61. J. Albrecht & M. Neyt & T. Verbeke, 2005. "Bureaucratisation and the growth of health care expenditures in Europe," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/335, Ghent University, Faculty of Economics and Business Administration.
  62. Domenech, Rafael & Gomez, Victor, 2006. "Estimating Potential Output, Core Inflation, and the NAIRU as Latent Variables," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 354-365, July.
  63. W. Buckinx & G. Verstraeten & D. Van Den Poel, 2005. "Predicting Customer Loyalty Using The Internal Transactional Database," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/324, Ghent University, Faculty of Economics and Business Administration.
  64. G. Poels & A. Maes & F. Gailly, 2005. "User Attitudes towards Pattern-Based Enterprise Information Models: A Replicated Experiment with REA Diagrams," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/315, Ghent University, Faculty of Economics and Business Administration.
  65. M. Buelens & D. Bouckenooghe & D. De Clercq & A. Willem, 2005. "An Assessment of Validity in Small Business and Entrepreneurship Research," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/328, Ghent University, Faculty of Economics and Business Administration.
  66. D. Vantomme & M. Geuens & S. Dewitte, 2005. "How to Portray Men and Women in Advertisements? Explicit and Implicit Evaluations of Ads Depicting Different Gender Roles," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/319, Ghent University, Faculty of Economics and Business Administration.
  67. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  68. S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration.
  69. M. Vanhoucke & D. Debels, 2005. "The Discrete Time/Cost Trade-Off Problem Under Various Assumptions Exact And Heuristic Procedures," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/314, Ghent University, Faculty of Economics and Business Administration.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20050495. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.