Title: Inflation persistence: revisited

Authors: Edward N. Gamber; Jeffrey P. Liebner; Julie K. Smith

Addresses: Macroeconomic Analysis Division, Congressional Budget Office, Washington, DC 20515, USA ' Department of Mathematics, Lafayette College, Easton, PA, 18042, USA ' Department of Economics, Lafayette College, Easton, PA, 18042, USA

Abstract: This paper presents evidence on the persistence of inflation in the USA over the period 1949-2014. Of particular interest is whether the persistence of inflation has changed over that time period. We use a reduced form approach to measuring inflation persistence, modelling inflation as an autoregressive process. We measure persistence as the half-life of a shock to that process. Our analysis employs both a Frequentist approach and a Bayesian approach to identify breaks in inflation persistence. Both our Frequentist and Bayesian results indicate that inflation persistence has undergone significant changes over the past 60 years.

Keywords: inflation persistence; Bayesian econometrics; half-life; breakpoints; inflation modelling; Frequentist econometrics.

DOI: 10.1504/IJMEF.2016.074578

International Journal of Monetary Economics and Finance, 2016 Vol.9 No.1, pp.25 - 44

Received: 26 Jun 2014
Accepted: 28 May 2015
Published online: 06 Feb 2016 *

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