IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Breaks in the mean of inflation: how they happen and what to do with them

  • Corvoisier, Sandrine
  • Mojon, Benoît

In most OECD countries, we cannot reject up to three breaks in the mean of inflation: one break in the late 1960’s-early 1970’s, one in the early-mid 1980’s and another break in the early 1990’s. These breaks tend to be associated more often to breaks in the mean of nominal variables than to the one of real variables, which reinforces the view that they are monetary phenomena. We also show that ignoring breaks in the mean of inflation clearly lead to overrate inflation persistence in standard bi-variate models of inflation. The response of inflation to shocks in these models is markedly faster with breaks than without breaks. Finally, controlling for breaks in the mean of inflation weakens the effects on inflation of M3 growth and of the real unit labour cost towards insignificance while the effects of the output gaps on inflation are more robust. JEL Classification: E31, E52, C32

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp451.pdf
Download Restriction: no

Paper provided by European Central Bank in its series Working Paper Series with number 0451.

as
in new window

Length:
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050451
Contact details of provider: Postal: 60640 Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jean Boivin & Marc P. Giannoni, 2003. "Has Monetary Policy Become More Effective?," NBER Working Papers 9459, National Bureau of Economic Research, Inc.
  2. Nicoletta Batini & Edward Nelson, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," Discussion Papers 06, Monetary Policy Committee Unit, Bank of England.
  3. Stephen Cecchetti & Guy Debelle, 2005. "Has the inflation process changed?," BIS Working Papers 185, Bank for International Settlements.
  4. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  5. Laurence Ball & Niamh Sheridan, 2004. "Does inflation targeting matter?," DNB Staff Reports (discontinued) 118, Netherlands Central Bank.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  7. Arturo Estrella & Jeffrey C. Fuhrer, 2003. "Monetary Policy Shifts and the Stability of Monetary Policy Models," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 94-104, February.
  8. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  9. Daniel Dias & Carlos Robalo Marques, 2005. "Using Mean Reversion as a Measure of Persistence," Working Papers w200503, Banco de Portugal, Economics and Research Department.
  10. Beyer, Andreas & Farmer, Roger E. A., 2003. "Identifying the monetary transmission mechanism using structural breaks," Working Paper Series 0275, European Central Bank.
  11. Agresti, Anna Maria & Mojon, Benoît, 2001. "Some stylised facts on the euro area business cycle," Working Paper Series 0095, European Central Bank.
  12. Nicoletta Batini, 2006. "Euro area inflation persistence," Empirical Economics, Springer, vol. 31(4), pages 977-1002, November.
  13. Shaghil Ahmed & Andrew Levin & Beth Anne Wilson, 2002. "Recent U.S. macroeconomic stability: good policies, good practices or good luck?," International Finance Discussion Papers 730, Board of Governors of the Federal Reserve System (U.S.).
  14. Filippo Altissimo & Valentina Corradi, 2000. "Strong Rules for Detecting the Number of Breaks in a Time Series," Econometric Society World Congress 2000 Contributed Papers 0574, Econometric Society.
  15. Laurence Ball, 1996. "Disinflation and the NAIRU," NBER Working Papers 5520, National Bureau of Economic Research, Inc.
  16. Luca Benati & George Kapetanios, 2003. "Structural Breaks in Inflation Dynamics," Computing in Economics and Finance 2003 169, Society for Computational Economics.
  17. Benassy, Jean-Pascal, 2004. "Optimal indexation and the cyclical behavior of prices," Economics Letters, Elsevier, vol. 83(1), pages 83-88, April.
  18. Timothy Cogley & Thomas J. Sargent, 2002. "Evolving Post-World War II U.S. Inflation Dynamics," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 331-388 National Bureau of Economic Research, Inc.
  19. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20050451. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.