Title

Time-varying Persistence of Inflation: Evidence from a Wavelet-based Approach

Document Type

Article

Publication Date

1-1-2017

Publication Title

Studies in Nonlinear Dynamics and Econometrics

Volume

21

Issue

4

Abstract

We propose a new stochastic 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. The empirical results are consistent with newly developed tests of wavelet-based unit root and fractional Brownian motion. © 2017 Walter de Gruyter GmbH, Berlin/Boston.

Language

english

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