Inflation Persistence Before and After Inflation Targeting: A Fractional Integration Approach
Eastern Economic Journal, July 2015
40 Pages Posted: 1 Feb 2014 Last revised: 31 Aug 2016
Date Written: January 30, 2014
We investigate the empirics of the persistence in the inflation series for 13 OECD countries that use an inflation targeting regime. We estimate persistence in the pre- and post-targeting periods using the fractional integration framework suggested by Kim and Phillips (2006, 2000) and Phillips (2007). We find that (i) inflation exhibits a fractional behavior over the entire sample period and, in most cases, in the pre- and post-targeting periods, (ii) the adoption of inflation targeting represents a structural break in all the inflation series, (iii) significant variations and asymmetries exist in inflation persistence across the inflation targeting countries, (iv) about half of the countries in the sample persistence experience significantly lower persistence in the inflation targeting period, (v) in the inflation targeting period all inflation series exhibit mean reversion, and (vi) for one country, South Africa, persistence increases after the adoption of inflation targeting.
Keywords: persistence, log periodogram, inflation targeting, fractional integration
JEL Classification: C14; E31; C22
Suggested Citation: Suggested Citation