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Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model


  • Baillie, Richard T
  • Chung, Ching-Fan
  • Tieslau, Margie A


This paper considers the application of long-memory processes to describing inflation for 10 countries. We implement a new procedure to obtain approximate maximum likelihood estimates of an ARFIMA-GARCH process; which is fractionally integrated I(d) with a superimposed stationary ARMA component in its conditional mean. Additionally, this long-memory process is allowed to have GARCH type conditional heteroscedasticity. On analysing monthly post-World War II CPI inflation for 10 different countries, we find strong evidence of long memory with mean reverting behaviour for all countries except Japan, which appears stationary. For three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the Friedman hypothesis. Copyright 1996 by John Wiley & Sons, Ltd.

Suggested Citation

  • Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb..
  • Handle: RePEc:jae:japmet:v:11:y:1996:i:1:p:23-40

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    References listed on IDEAS

    1. Eymann, Angelika & Ronning, Gerd, 1992. "Microeconometric models of tourists' destination choice," Discussion Papers, Series II 171, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
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    3. Horowitz, Joel L., 1986. "A distribution-free least squares estimator for censored linear regression models," Journal of Econometrics, Elsevier, vol. 32(1), pages 59-84, June.
    4. Powell, James L, 1986. "Symmetrically Trimmed Least Squares Estimation for Tobit Models," Econometrica, Econometric Society, vol. 54(6), pages 1435-1460, November.
    5. Duncan, Gregory M., 1986. "A semi-parametric censored regression estimator," Journal of Econometrics, Elsevier, vol. 32(1), pages 5-34, June.
    6. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    7. Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
    8. Horowitz, Joel L., 1993. "Semiparametric estimation of a work-trip mode choice model," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 49-70, July.
    9. Klein, Roger W & Spady, Richard H, 1993. "An Efficient Semiparametric Estimator for Binary Response Models," Econometrica, Econometric Society, vol. 61(2), pages 387-421, March.
    10. Hurd, Michael, 1979. "Estimation in truncated samples when there is heteroscedasticity," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 247-258.
    11. Fernandez, Luis, 1986. "Non-parametric maximum likelihood estimation of censored regression models," Journal of Econometrics, Elsevier, vol. 32(1), pages 35-57, June.
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