The Determinants of Inflation
Kinlaw, W., M. Kritzman, M. Metcalfe and D. Turkington. 2023. "The Determinants of Inflation." The Journal of Investment Management, 21 (3).
Posted: 16 Jun 2022 Last revised: 9 Sep 2023
Date Written: June 13, 2022
Abstract
The authors apply a Hidden Markov Model to identify regimes of shifting inflation and then employ an attribution technique based on the Mahalanobis distance to identify the economic variables that determine the trajectory of inflation. Their analysis enables policymakers to focus on the most effective tools to manage inflation, and it offers guidance to investors whose strategies might benefit from knowledge of the prevailing determinants of inflation. Their analysis reveals that as of February 2022, the most important determinant of the recent spike in inflation was spending by the federal government.
Keywords: Baum-Welch Algorithm, Euclidean Distance, Hidden Markov Model, Mahalanobis Distance, Markov process, Regime Characteristic, z-score
JEL Classification: C10, C13, C40, C50, C54, C60, E40, E44, E50, E52, E58, E60, E62, E66, H60
Suggested Citation: Suggested Citation
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