Are Shocks to Inflation Infinitely Persistent?
AbstractUnit root and stationarity test suggest that shocks to quarterly US, Japanese and UK inflation are infinitely persistent. Recently developed test based on threshold autoregressions are used to distinguish between non-stationarity and non-linearity. The evidence suggests that inflation is well described as a two-regime covariance stationary threshold process. Shocks to inflation are highly persistent in one regime, but have finite lives in the other regime. A small-scale Monte-Carlo experiment is used to document the finite sample performance of commonly used unit root and stationarity tests in the face of a neglected threshold effect.
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Bibliographic InfoPaper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 718.
Length: 20 pages
Date of creation: 1999
Date of revision:
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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
Phone: +61 3 8344 5289
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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INFLATION ; ECONOMETRICS ; REGRESSION ANALYSIS;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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