Persistence in Inflation: Does Aggregation Cause Long Memory?

32 Pages Posted: 11 Jun 2008

Date Written: October 1, 2004

Abstract

This paper examines persistence in Turkish inflation rates using data from consumer and wholesale price indices. The inflationary process in Turkey is believed to be highly inertial, which should lead to strongly persistent inflation series. Persistence of seventy-five inflation series at various aggregation levels are examined by estimating models that allow long memory through fractional differencing. The order of fractional differencing is estimated using several semiparametric and maximum likelihood methods. Persistence of each series is evaluated using the time required for a given percentage of the effect of a shock to dissipate. We find that disaggregate inflation series show no significant persistence. We found that only twelve out of seventy-five series require more than six months for 99 percent of the effect of a shock to dissipate. Thus, the paper finds evidence of spurious long memory due to aggregation.

Keywords: aggregation, fractional differencing, inflation, inertia, long memory models, persistence

JEL Classification: C14, C22, E31

Suggested Citation

Balcilar, Mehmet, Persistence in Inflation: Does Aggregation Cause Long Memory? (October 1, 2004). Available at SSRN: https://ssrn.com/abstract=1144016 or http://dx.doi.org/10.2139/ssrn.1144016

Mehmet Balcilar (Contact Author)

University of New Haven ( email )

300 Boston Post Road
West Haven, CT 06516
United States

HOME PAGE: http://www.mbalcilar.net

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