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Abstract

This paper addresses some issues concerning the definition and measurement of inflation persistence in the context of the univariate approach. First, it is stressed that any estimate of persistence should be seen as conditional on the given assumption for the long run level of inflation and that such long run level should be allowed to vary through time. Second, a non-parametric measure of persistence is suggested which explores the relation between persistence and mean reversion. Third, inflation persistence in the U.S. and the Euro Area is re-evaluated allowing for a time varying mean and it is found that estimates of persistence crucially depend on the function used to proxy the mean of inflation. In particular, the widespread belief that inflation has been more persistent in the sixties and seventies than in the last twenty years is shown to obtain only for the U.S. and for the special case of a constant mean.

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File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/WP200408.pdf
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Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200408.

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Date of creation: 2004
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Handle: RePEc:ptu:wpaper:w200408

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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
• E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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1. Francisco Maeso-Fernandez & Chiara Osbat & Bernd Schnatz, 2004. "Towards the estimation of equilibrium exchange rates for CEE acceding countries: methodological issues and a panel cointegration perspective," Working Paper Series 353, European Central Bank.
2. Andrew Levin & Jeremy Piger, 2003. "Is Inflation Persistence Intrinsic in Industrial Economies?," Computing in Economics and Finance 2003 298, Society for Computational Economics.
   
   • Andrew T. Levin & Jeremy M. Piger, 2004. "Is inflation persistence intrinsic in industrial economies?," Working Paper Series 334, European Central Bank.
   • Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
3. Alexis Derviz, 2004. "Exchange rate risks and asset prices in a small open economy," Working Paper Series 314, European Central Bank.

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