On the Persistence of UK Inflation: A Long-Range Dependence Approach

34 Pages Posted: 18 Apr 2018

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Tommaso Trani

University of Navarra - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2018

Abstract

This paper examines the degree of persistence in UK inflation by applying long-memory methods to historical data that span the period from 1660 to 2016. Specifically, we use both parametric and non-parametric fractional integration techniques, that are more general than those based on the classical I(0) vs. I(1) dichotomy. Further, we carry out break tests to detect any shifts in the degree of persistence, and also run rolling-window and recursive regressions to investigate its evolution over time. On the whole, the evidence suggests that the degree of persistence of UK inflation has been relatively stable following the Bretton Woods period, despite the adoption of different monetary regimes. The estimation of an unobserved-components stochastic volatility model sheds further light on the issues of interest by showing that post-Bretton Woods changes in UK inflation are attributable to a fall in the volatility of permanent shocks.

Keywords: UK inflation, persistence, fractional integration

JEL Classification: C14, C22, E31

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Trani, Tommaso, On the Persistence of UK Inflation: A Long-Range Dependence Approach (April 2018). DIW Berlin Discussion Paper No. 1731, Available at SSRN: https://ssrn.com/abstract=3161343 or http://dx.doi.org/10.2139/ssrn.3161343

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Tommaso Trani

University of Navarra - School of Economics ( email )

Universidad de Navarra
Campus Universitario
Pamplona, 31009
Spain

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