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Investigating Inflation Dynamics and Structural Change with an Adaptive ARFIMA Approach

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Author Info
Richard T. Baille
Claudio Morana ()
Abstract

Previous models of monthly CPI inflation time series have focused on possible regime shifts, non-linearities and the feature of long memory. This paper proposes a new time series model, named Adaptive ARFIMA; which appears well suited to describe inflation and potentially other economic time series data. The Adaptive ARFIMA model includes a time dependent intercept term which follows a Flexible Fourier Form. The model appears to be capable of succesfully dealing with various forms of breaks and discontinities in the conditional mean of a time series. Simulation evidence justifies estimation by approximate MLE and model specfication through robust inference based on QMLE. The Adaptive ARFIMA model when supplemented with conditional variance models is found to provide a good representation of the G7 monthly CPI inflation series.

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Publisher Info
Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers - Applied Mathematics Series with number 06-2009.

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Length: 15 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:icr:wpmath:06-2009

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Related research
Keywords: ARFIMA; FIGARCH; long memory; structural change; inflation; G7.;

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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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. Charles S. Bos & Philip Hans Franses & Marius Ooms, 2001. "Inflation, Forecast Intervals and Long Memory Regression Models," Tinbergen Institute Discussion Papers 01-029/4, Tinbergen Institute. [Downloadable!]
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  2. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November. [Downloadable!] (restricted)
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  3. Claudio Morana & Fabio Cesare Bagliano, 2007. "Inflation and monetary dynamics in the USA: a quantity-theory approach," Applied Economics, Taylor and Francis Journals, vol. 39(2), pages 229-244, February. [Downloadable!] (restricted)
  4. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June. [Downloadable!] (restricted)
  5. Denise Osborn & Marianne Sensier, 2007. "UK inflation: persistance, seasonality and monetary policy," The School of Economics Discussion Paper Series 0716, Economics, The University of Manchester. [Downloadable!]
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  6. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June. [Downloadable!]
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  7. Christian Conrad & Berthold R. Haag, 2006. "Inequality Constraints in the Fractionally Integrated GARCH Model," Journal of Financial Econometrics, Oxford University Press, vol. 4(3), pages 413-449. [Downloadable!] (restricted)
  8. Philip Hans Franses & Marius Ooms & Charles S. Bos, 1999. "Long memory and level shifts: Re-analyzing inflation rates," Empirical Economics, Springer, vol. 24(3), pages 427-449. [Downloadable!] (restricted)
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  9. Christopher F. Baum & John T. Barkoulas & Mustafa Caglayan, 1999. "Persistence in International Inflation Rates," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 900-913, April.
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  10. M. Ooms & J.A. Doornik, 1999. "Inference and forecasting for fractional autoregressive integrated moving average models; with an application to US and UK inflation," Econometric Institute Report 171, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
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  11. Baillie, Richard T. & Kapetanios, George, 2007. "Testing for Neglected Nonlinearity in Long-Memory Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 447-461, October. [Downloadable!] (restricted)
  12. Hassler, Uwe & Wolters, Jurgen, 1995. "Long Memory in Inflation Rates: International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 37-45, January.
  13. Hyung, Namwon & Franses, Philip Hans & Penm, Jack, 2006. "Structural breaks and long memory in US inflation rates: Do they matter for forecasting?," Research in International Business and Finance, Elsevier, vol. 20(1), pages 95-110, March. [Downloadable!] (restricted)
  14. repec:bep:sndecm:6:2002:3:1092-1092 is not listed on IDEAS
  15. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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