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On the dynamics of inflation persistence around the world

Listed author(s):
  • Antonio E. Noriega
  • Manuel Ramos Francia

We study the dynamics of inflation persistence in 45 countries for the period 1960-2008. We use a nonparametric unit root test robust to nonlinearities, error distributions, structural breaks and outliers, many of them typical features of inflation data, and a test for multiple changes in persistence, which decomposes the sample information between adjacent I(0) and I(1) periods. We find that (1) With very few exceptions, inflation around the world rejects a unit root, (2) for several countries there is evidence of significant changes in persistence, (3) bursts and drops in the level of inflation and in inflation persistence tend to coincide, (4) these drops occurred during “the Great Moderation” and during the adoption of inflation targeting. We conclude that inflation is characterized by either a stationary behaviour throughout the sample, or by switches of the type I(0)-I(1)-I(0). For all countries in our sample, any indication of nonstationarity seems to be temporary.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7BC0521285-30E1-1548-6CA5-AE22BBF807AF%7D.pdf
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Paper provided by Banco de México in its series Working Papers with number 2009-02.

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Date of creation: Feb 2009
Handle: RePEc:bdm:wpaper:2009-02
Contact details of provider: Web page: http://www.banxico.org.mx

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