Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US

Journal of Economic Studies, Issue 6, 2016

Posted: 27 Aug 2014 Last revised: 18 Jun 2017

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: June 26, 2015

Abstract

This paper reports a two-stage analysis of inflation persistence using monthly data from 11 IT countries and, for comparison, the US, a non IT country with a history of credible monetary policy. First, we estimate inflation persistence in a rolling-window fractional integration setting using the semiparametric estimator suggested by Phillips (2007). Second, we use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. We use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. These results suggest that four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the US experience a structural break in inflation persistence that coincides with the global financial crisis.

Keywords: inflation persistence; inflation targeting; fractional integration; rolling window estimation; structural breaks

JEL Classification: C14, E31, C22

Suggested Citation

Canarella, Giorgio and Miller, Stephen M., Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US (June 26, 2015). Journal of Economic Studies, Issue 6, 2016. Available at SSRN: https://ssrn.com/abstract=2486872 or http://dx.doi.org/10.2139/ssrn.2486872

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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