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Measuring Inflation Persistence: A Structural Time Series Approach

Listed author(s):
  • Maarten Dossche

    ()

    (Research National Bank Belgium - Ghent University)

  • Gerdie Everaert

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

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 459.

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Date of creation: 11 Nov 2005
Handle: RePEc:sce:scecf5:459
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