Inflation Targeting: New Evidence from Fractional Integration and Cointegration

Journal of Economics and Business, July-August 2017

36 Pages Posted: 21 Aug 2016 Last revised: 26 Nov 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: August 19, 2016

Abstract

We investigate inflation persistence in six inflation targeting (IT) countries from the global-economy perspective. This view maintains that inflation persistence in IT countries has declined mainly because of the decline of inflation persistence in the global economy. We provide empirical evidence on two yet unanswered questions. First, we investigate whether each IT country in the sample share a common persistence with Germany and the US, two non-IT countries with a relatively good inflation record, which we use as proxies for the global economy. This tests the weak-form global hypothesis. Second, for the countries that share common inflation persistence with Germany and the US, we examine whether the same long memory component drives their inflationary processes to converge in the long-run to a common stochastic equilibrium with Germany and the US. This tests the strong-form global hypothesis. Our findings cast doubt on the relevance of IT in the industrial, but not developing, countries in the sample, suggesting that the global economy probably played an important role in the decline of inflation persistence in industrial, but not developing, countries.

Keywords: inflation targeting, inflation persistence, fractional integration, cointegration

JEL Classification: C14; E31; C22

Suggested Citation

Canarella, Giorgio and Miller, Stephen M., Inflation Targeting: New Evidence from Fractional Integration and Cointegration (August 19, 2016). Journal of Economics and Business, July-August 2017. Available at SSRN: https://ssrn.com/abstract=2826793 or http://dx.doi.org/10.2139/ssrn.2826793

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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