Inflation, Learning and Monetary Policy Regimes in the G-7 Economies
AbstractIn this paper, the authors report estimates of two- and three-state Markov switching models applied to inflation, measured using consumer price indexes, in the G-7 countries. They report tests that show that two-state models are preferred to simple one-state representations of the data, and argue that three-state representations are more satisfactory than two-state representations for some countries. The preferred estimation results usually include a state that features a unit root in its dynamic structure, which concurs with results of direct tests for this property. However, the multistate representation of the data shows that for all G7 countries these quasi-unit-root properties arise primarily from a few brief episodes of history, concentrated in the 1970s and associated with the major oil-price shocks. For all countries there is evidence of progress towards establishing credibility of regimes with stable inflation, and in many countries there is evidence of progress in building credibility of regimes with low inflation. Credibility refers to the ex post probability assigned to the state by the Markov model, which has a large effect on how expectations of future inflation are formed. An interesting contrast arises from the results for the United States and Canada. Whereas in Canada the credibility of a regime with historically low inflation has risen sharply in the last few years, in the United States there has been convergence on a regime with a stable, but historically average, rate of inflation and not on the alternative low-inflation regime.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 9506004.
Length: 60 pages
Date of creation: 28 Jun 1995
Date of revision: 15 Feb 1996
Note: 60 printed pages, compressed PostScript file. Other recent Bank of Canada working papers are listed on the last page of this report. Bank of Canada 95-6
Contact details of provider:
Web page: http://220.127.116.11
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
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.:
- Robert A. Amano & Tony S. Wirjanto, .
"An Empirical Investigation into Government Spending and Private Sector Behaviour,"
94-8, Bank of Canada.
- Robert A. Amano & Tony S. Wirjanto, 1995. "An Empirical Investigation into Government Spending and Private Sector Behaviour," Macroeconomics 9502005, EconWPA.
- Robert A. Amano & Tony S. Wirjanto, 1994.
"The Dynamic Behaviour of Canadian Imports and the Linear-Quadratic Model: Evidence Based on the Euler Equation,"
- Robert A. Amano & Tony S. Wirjanto, . "The Dynamic Behaviour of Canadian Imports and the Linear-Quadratic Model: Evidence Based on the Euler Equation," Working Papers 94-6, Bank of Canada.
- Lewis, Karen K, 1989. "Changing Beliefs and Systematic Rational Forecast Errors with Evidence from Foreign Exchange," American Economic Review, American Economic Association, vol. 79(4), pages 621-36, September.
- Alain DeSerres & Alain Guay & Pierre St-Amant, 1995. "Estimating and Projecting Potential Output Using Structural VAR Methodology," Macroeconomics 9504003, EconWPA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.