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Long Memory and Non-Linearities in International Inflation

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  • Giovanni Caggiano

    ()
    (University of Padua)

  • Efrem Castelnuovo

    ()
    (University of Padua)

Abstract

This paper investigates inflation dynamics in a panel of 20 OECD economies using an approach based on the sample autocorrelation function (ACF). We find that inflation is characterized by long-lasting fluctuations, which are similar across countries and that eventually revert to a potentially time-varying mean. The cyclical and persistent behavior of inflation does not belong to the class of linear autoregressive processes but rather to a more general class of nonlinear and long memory models. Recent theoretical contributions on heterogeneity in price setting and aggregation offer a rationale to our results. Finally, we draw the monetary policy implications of our findings.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0076.

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Length: 29 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:pad:wpaper:0076

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Keywords: AutoCorrelation Function; long-memory; inflation persistence; inflation targeting; heavy tails.;

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