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Testing for persistence change in fractionally integrated models: An application to world inflation rates

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  • Martins, Luis F.
  • Rodrigues, Paulo M.M.

Abstract

A new approach to detect persistence change in fractionally integrated models based on recursive forward and backward estimation of regression-based Lagrange Multiplier tests is proposed. This procedure generalizes approaches for conventional integrated processes to the fractional integration context. Asymptotic results are derived and the performance of the new tests evaluated in a Monte Carlo exercise. In particular, analytical and simulation results are provided for cases where the order of fractional integration is both known and unknown and needs to be estimated. The finite sample size and power performance of the statistics are encouraging and compare favorably to other recently proposed tests in the literature. The test statistics introduced are also applied to several world inflation rates and evidence of persistence change is found in most series.

Suggested Citation

  • Martins, Luis F. & Rodrigues, Paulo M.M., 2014. "Testing for persistence change in fractionally integrated models: An application to world inflation rates," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 502-522.
  • Handle: RePEc:eee:csdana:v:76:y:2014:i:c:p:502-522
    DOI: 10.1016/j.csda.2012.07.021
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    Cited by:

    1. João Pedro Pereira & Vasco Pesquita & António Rua & Paulo M.M. Rodrigues, 2016. "Market integration and the persistence of electricity prices," Working Papers w201609, Banco de Portugal, Economics and Research Department.
    2. repec:eme:jespps:jes-10-2015-0190 is not listed on IDEAS
    3. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1144-y is not listed on IDEAS
    4. Hassler, Uwe & Rodrigues, Paulo M.M. & Rubia, Antonio, 2014. "Persistence in the banking industry: Fractional integration and breaks in memory," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 95-112.
    5. Antonakakis, Nikolaos & Cunado, Juncal & Gil-Alana, Luis A. & Gupta, Rangan, 2016. "Is inflation persistence different in reality?," Economics Letters, Elsevier, vol. 148(C), pages 55-58.
    6. Giorgio Canarella & Stephen Miller, 2016. "Inflation persistence and structural breaks: the experience of inflation targeting countries and the US," Journal of Economic Studies, Emerald Group Publishing, vol. 43(6), pages 980-1005, November.
    7. Shyh-Wei Chen & Chi-Sheng Hsu & Cyun-Jhen Pen, 2016. "Are Inflation Rates Mean-reverting Processes? Evidence from Six Asian Countries," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 12(1), pages 119-155, February.
    8. Massimiliano Caporin & Rangan Gupta, 2017. "Time-varying persistence in US inflation," Empirical Economics, Springer, vol. 53(2), pages 423-439, September.
    9. Kruse Robinson & Ventosa-Santaulària Daniel & Noriega Antonio E., 2017. "Changes in persistence, spurious regressions and the Fisher hypothesis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(3), pages 1-28, June.
    10. repec:spr:empeco:v:54:y:2018:i:4:d:10.1007_s00181-017-1276-8 is not listed on IDEAS
    11. Martins, Luis F. & Rodrigues, Paulo M.M., 2014. "Testing for persistence change in fractionally integrated models: An application to world inflation rates," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 502-522.
    12. Chen, Shyh-Wei & Hsu, Chi-Sheng, 2016. "Threshold, smooth transition and mean reversion in inflation: New evidence from European countries," Economic Modelling, Elsevier, vol. 53(C), pages 23-36.
    13. repec:eee:riibaf:v:42:y:2017:i:c:p:1089-1095 is not listed on IDEAS
    14. Chen, Zhanshou & Xing, Yuhong & Li, Fuxiao, 2016. "Sieve bootstrap monitoring for change from short to long memory," Economics Letters, Elsevier, vol. 140(C), pages 53-56.

    More about this item

    Keywords

    LM tests; Nonstationarity; Fractional integration; Persistence change; Inflation;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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