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

See all articles by Giorgio Canarella

Giorgio Canarella

California State University, Los Angeles - Department of Economics & Statistics; University of Nevada, Las Vegas

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: January 30, 2014

Abstract

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

Canarella, Giorgio and Miller, Stephen M., Inflation Persistence Before and After Inflation Targeting: A Fractional Integration Approach (January 30, 2014). Eastern Economic Journal, July 2015. Available at SSRN: https://ssrn.com/abstract=2388288 or http://dx.doi.org/10.2139/ssrn.2388288

Giorgio Canarella

California State University, Los Angeles - Department of Economics & Statistics ( email )

Los Angeles
Los Angeles, CA 90032
United States

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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