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Inflation dynamics in the US: global but not local mean reversion

Paya, I and Nobay, A and Peel, D (2010) Inflation dynamics in the US: global but not local mean reversion. Journal of Money, Credit and Banking, 42 (1). pp. 135-150. ISSN 0022-2879

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    Abstract

    A stylized fact of U.S. inflation dynamics is one of extreme persistence and possible unit root behavior. If so, the implications for macroeconomics and monetary policy are somewhat unpalatable. Our econometric analysis proposes a parsimonious univariate representation of the inflation process for the last 60 years, the nonlinear exponential smooth autoregressive. The empirical results confirm a number of the key features such as global stationarity, local unit root behavior, and lower persistence in the post-1983 period than in the pre-1983 period. We compare the forecasting ability of our model with that of competing univariate models and find that the nonlinear model outperforms the linear autoregressive model in the pre-1983 period and the random walk in the post-1983 period at short horizons.

    Item Type: Article
    Journal or Publication Title: Journal of Money, Credit and Banking
    Subjects: UNSPECIFIED
    Departments: Lancaster University Management School > Economics
    ID Code: 45453
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 19:32
    Refereed?: Yes
    Published?: Published
    Last Modified: 09 Apr 2014 22:32
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/45453

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