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Nonlinear Inflationary Persistence and Growth: Theory and Empirical Comparative Analysis


  • Charemza, Wojciech

    () (University of Leicester, UK)

  • Makarova, Svetlana

    (University College London, UK)


The paper focuses on the decomposition of inflation persistence into the linear and nonlinear components. The hypothesis is that the nonlinear component of inflation persistence results from a technological shock and might positively contribute to economic growth. The microfoundations are derived from an assumption of Calvo pricing and sticky-information Keynesian Phillips curve. The hypothesis is evaluated empirically with the use of monthly data series for inflation for 119 countries. Linear and nonlinear (bilinear) inflation persistence measures have been estimated with the use of a bilinear autoregressive moving average model in a state space form. Further on, correlation analysis has been performed for these countries to detect a relationship between economic growth and linear and nonlinear persistence. The paper concludes that the nonlinear inflation persistence contributes positively to economic growth after 2000.

Suggested Citation

  • Charemza, Wojciech & Makarova, Svetlana, 2009. "Nonlinear Inflationary Persistence and Growth: Theory and Empirical Comparative Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 5-22, June.
  • Handle: RePEc:rjr:romjef:v:6:y:2009:i:2:p:5-22

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    References listed on IDEAS

    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    2. Peel, David & Davidson, James, 1998. "A non-linear error correction mechanism based on the bilinear model1," Economics Letters, Elsevier, vol. 58(2), pages 165-170, February.
    3. Max Gillman & Mark Harris & László Mátyás, 2002. "Inflation and Growth: Some Theory and Evidence," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D5-1, International Conferences on Panel Data.
    4. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters,in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
    5. Richard Mash, 2004. "Optimising Microfoundations for Inflation Persistence," Economics Series Working Papers 183, University of Oxford, Department of Economics.
    6. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1326-1358, April.
    7. Halunga, Andreea G. & Osborn, Denise R. & Sensier, Marianne, 2009. "Changes in the order of integration of US and UK inflation," Economics Letters, Elsevier, vol. 102(1), pages 30-32, January.
    8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    9. Dias, Daniel A. & Marques, Carlos Robalo, 2010. "Using mean reversion as a measure of persistence," Economic Modelling, Elsevier, vol. 27(1), pages 262-273, January.
    10. Wojciech Charemza & Daniela Hristova & Peter Burridge, 2005. "Is inflation stationary?," Applied Economics, Taylor & Francis Journals, vol. 37(8), pages 901-903.
    11. Beechey, Meredith & Österholm, Pär, 2009. "Time-varying inflation persistence in the Euro area," Economic Modelling, Elsevier, vol. 26(2), pages 532-535, March.
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    Cited by:

    1. Muhammad Nadim Hanif & Muhammad Jahanzeb Malik & Javed Iqbal, 2016. "Intrinsic Inflation Persistence in a Developing Country," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 19-42.
    2. Andrew Phiri, 2012. "Threshold effects and inflation persistence in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 4(3), pages 247-269, July.
    3. Shah, Imran H. & Corrick, Ian & Saboor, Abdul, 2016. "How Should Central Banks Respond to Non-neutral Inflation Expectations," Department of Economics Working Papers 58123, University of Bath, Department of Economics.
    4. Asif Mahmood, 2016. "Transmission of Volatility of Money Market Overnight Repo Rate along the Yield Curve in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 12, pages 1-18.

    More about this item


    inflation; growth; bilinear processes;

    JEL classification:

    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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