A Markov-switching Model of Inflation in Australia
AbstractThis paper applies the methodology of Markov-switching models to describe the inflation process in Australia in the period since the early 1960s. In contrast to conventional modelling, the approach makes explicit allowance for the possibility of structural change: inflation is modelled within a framework that allows endogenous switching between simple inflation equations. The approach may be relevant to understanding shifts in inflation expectations if the public also uses relatively simple forecasting rules in formulating expectations. The results suggest that inflation is reasonably well represented by relatively simple functions of past inflation and an output gap term, with major regime changes occurring in the early 1970s and early 1990s.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9611.
Date of creation: Dec 1996
Date of revision:
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
- O56 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Oceania
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- repec:wsd:irgpim:v:86:y:2011:i:1:p:185-199 is not listed on IDEAS
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