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Fi-break Model of US Inflation Rate: Long-memory, Level Shifts, or Both?

Author

Listed:
  • Namwon Hyung

    (University of Seoul)

  • Philip Hans Franses

    (Econometric Institute Erasmus University Rotterdam)

Abstract

This paper presents a new time series model, called the FI-BREAK model, which is used to describe US inflation, and incorporates long moemory and occasional level shifts at a priori unknown locations. It is demonstrated that, even in the presence of such level shifts, the long memory parameter of the FI-BREAK model can be estimated reasonably accurately. For US inflaction, it is found that the proposed mode's in-sample fit and out-of-sample forecasts are superior over those of single-feature models with long memory or level shifts.

Suggested Citation

  • Namwon Hyung & Philip Hans Franses, 2006. "Fi-break Model of US Inflation Rate: Long-memory, Level Shifts, or Both?," Korean Economic Review, Korean Economic Association, vol. 22, pages 83-97.
    • Handle: RePEc:kea:keappr:ker-20060630-22-1-05
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    More about this item

    Keywords

    FI-BREAK; long memory; level shifts; inflation;
    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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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