Measuring persistence in inflation: evidence for Angola

Understanding inflation persistence in Angola is crucial because National Bank of Angola has approved in 2012 a new monetary policy operational framework which upgrades and expands the set of instruments to achieve its monetary goals. The purpose of this paper is to measure the degree of persistence of the headline, food, energy, underlying and 10% trimmed core inflations for Angola and to identify its implications for decision-making.Using both a traditional univariate method and non-parametric approach, our results suggest the presence of a statistically significant level of persistence in five inflation indicators for Angola. Moreover, the degree of persistence is similar both across the five inflation indicators and also across the sample period. Finally, our results also confirm that extracting the most volatile components of the headline inflation indicator does not generate a new inflation indicator that is less volatile and more persistent than the original.These results have important implications for the design, the implementations and the effectiveness of the monetary policy, specialty when under an inflation targeting regime. First, since shocks tend to temporarily deviate inflation from its trend value a permanent policy stance is required. Secondly, a low degree of persistence means that monetary policy aiming price stability can only be implemented in a favorable setting with a permanent policy stance. Moreover, a low degree of persistence means that inflation can be stabilized in a short period time following a shock. Finally results are also relevant for prediction and modeling purposes.