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Measuring inflation persistence: A structural time series approach

  • Maarten Dossche

    (National Bank of Belgium)

  • Gerdie Everaert

    (Ghent University)

Time series estimates of inflation persistence incur an upward bias if shifts in the inflation target of the central bank remain unaccounted for. Using a structural time series approach we measure different sorts of inflation persistence allowing for an unobserved time-varying inflation target. Unobserved components are identified using Kalman filtering and smoothing techniques. Posterior densities of the model parameters and the unobserved components are obtained in a Bayesian framework based on importance sampling. We find that inflation persistence, expressed by the half-life of a shock, can range from 1 quarter in case of a cost-push shock to several years for a shock to long-run inflation expectations or the output gap. JEL Classification: C11, C13, C22, C32, E31

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2005 with number 85.

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Date of creation: 03 Sep 2005
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Handle: RePEc:mmf:mmfc05:85
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