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Which is the best model for the US inflation rate: a structural changes model or a long memory process?

Author

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  • Lanouar Charfeddine

    (OEP - UPEM - Université Paris-Est Marne-la-Vallée)

  • Dominique Guegan

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyzes the dynamics of the US inflation series using two classes of models: structural changes models and Long memory processes. For the first class, we use the Markov Switching (MS-AR) model of Hamilton (1989) and the Structural Change (SCH-AR) model using the sequential method proposed by Bai and Perron (1998, 2003). For the second class, we use the ARFIMA process developed by Granger and Joyeux (1980). Moreover, we investigate whether the observed long memory behavior is a true behavior or a spurious behavior created by the presence of breaks in time series. Our empirical results provide evidence for changes in mean, breaks dates coincide exactly with some economic and financial events such Vietnam War and the two oil price shocks. Moreover, we show that the observed long memory behavior is spurious and is due to the presence of breaks in data set.

Suggested Citation

  • Lanouar Charfeddine & Dominique Guegan, 2007. "Which is the best model for the US inflation rate: a structural changes model or a long memory process?," Post-Print halshs-00188309, HAL.
    • Handle: RePEc:hal:journl:halshs-00188309
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00188309
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    References listed on IDEAS

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    Cited by:

    1. Charfeddine, Lanouar & Guégan, Dominique, 2012. "Breaks or long memory behavior: An empirical investigation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5712-5726.
    2. Lanouar Charfeddine & Dominique Guegan, 2009. "Breaks or Long Memory Behaviour: An empirical Investigation," Post-Print halshs-00377485, HAL.
    3. Peter Smith, 2010. "Discussion of the Fisher Effect Puzzle: A Case of Non-Linear Relationship," Open Economies Review, Springer, vol. 21(1), pages 105-108, February.

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