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
Date Written: June 26, 2015
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: Suggested Citation