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Testing and forecasting the degree of integration in the US inflation rate

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  • Luis A. Gil-Alana

    (University of Navarre, Spain)

Abstract

In this article we model the log of the US inflation rate by means of fractionally integrated processes. We use the tests of Robinson (1994) for testing this type of hypothesis, which include, as particular cases, the I(0) and I(1) specifications, and which also, unusually, have standard null and local limit distributions. A model selection criterion is established to determine which may be the best model specification of the series, and the forecasting properties of the selected models are also examined. The results vary substantially depending on how we specify the disturbances. Thus, if they are white noise, the series is I(d) with d fluctuating around 0.25; however, imposing autoregressive disturbances, the log of the US inflation rate seems to be anti-persistent, with an order of integration smaller than zero. Looking at the forecasting properties, those models based on autocorrelated disturbances (with d < 0) predict better over a short horizon, while those based on white noise disturbances (with d > 0) seem to predict better over longer periods of time. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Luis A. Gil-Alana, 2005. "Testing and forecasting the degree of integration in the US inflation rate," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(3), pages 173-187.
    • Handle: RePEc:jof:jforec:v:24:y:2005:i:3:p:173-187
    DOI: 10.1002/for.951
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    1. repec:fgv:epgrbe:v:65:n:3:a:4 is not listed on IDEAS
    2. da Silva, Cleomar Gomes & Leme, Maria Carolina da Silva, 2011. "An Analysis of the Degrees of Persistence of Inflation, Inflation Expectations and Real Interest Rate in Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 65(3), September.
    3. Guglielmo Caporale & Luis Gil-Alana, 2013. "Long memory in US real output per capita," Empirical Economics, Springer, vol. 44(2), pages 591-611, April.
    4. Cleomar Gomes da Silva & Maria Carolina da Silva Leme, 2008. "Inflation and Interest Rate: Which one is more persistent in Brazil?," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807181224190, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Lovcha, Yuliya & Pérez Laborda, Àlex, 2013. "A fractionally integrated approach to monetary policy and inflation dynamics," Working Papers 2072/211795, Universitat Rovira i Virgili, Department of Economics.

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