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Noncausality and inflation persistence

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  • Lanne Markku

    (Department of Political and Economic Studies, University of Helsinki, P.O. Box 17 (Arkadiankatu 7), Helsinki 00014, Finland)

Abstract

We use noncausal autoregressions to examine the persistence properties of quarterly US consumer price inflation from 1970:1 to 2012:2. These nonlinear models capture the autocorrelation structure of the inflation series as accurately as their conventional causal counterparts, but they allow for persistence to depend on the size and sign of shocks to inflation as well as the inflation rate. Inflation persistence has decreased since the early 1980s, after which persistence is also greater following small and negative shocks than large and positive ones. At high levels of inflation, shocks are absorbed more slowly before the early 1980s and faster thereafter compared to low levels of inflation.

Suggested Citation

  • Lanne Markku, 2015. "Noncausality and inflation persistence," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(4), pages 469-481, September.
    • Handle: RePEc:bpj:sndecm:v:19:y:2015:i:4:p:469-481:n:2
    DOI: 10.1515/snde-2013-0108
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    2. Markku Lanne & Henri Nyberg, 2015. "Nonlinear dynamic interrelationships between real activity and stock returns," CREATES Research Papers 2015-36, Department of Economics and Business Economics, Aarhus University.

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    More about this item

    Keywords

    generalized impulse response function; inflation persistence; noncausal autoregression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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