Time-Varying Persistence of Inflation: Evidence from a Wavelet-Based Approach
Studies in Nonlinear Dynamics and Econometrics, September 2017
38 Pages Posted: 20 Aug 2016 Last revised: 26 Nov 2017
Date Written: August 19, 2016
We propose a new long-memory model with a time-varying fractional integration parameter, evolving non-linearly according to a Logistic Smooth Transition Autoregressive (LSTAR) specification. To estimate the time-varying fractional integration parameter, we implement a method based on the wavelet approach, using the instantaneous least squares estimator (ILSE). The empirical results show the relevance of the modeling approach and provide evidence of regime change in inflation persistence that contributes to a better understanding of the inflationary process in the US. Most importantly, these empirical findings remind us that a "one-size-fits-all" monetary policy is unlikely to work in all circumstances.
Keywords: Time-varying long-memory, LSTAR model, MODWT algorithm, ILSE estimator
JEL Classification: C13, C22, C32, C54, E31
Suggested Citation: Suggested Citation