Hellenic Open University Conferences, International Conference on Business & Economics of the Hellenic Open University 2015

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US inflation dynamics on long range data
Theophilos Papadimitriou, Periklis Gogas, Vasilios Plakandaras, Rangan Gupta

Building: Titania
Room: Solon
Date: 2015-02-07 04:00 PM – 06:00 PM
Last modified: 2015-01-27

Abstract


In this paper we evaluate inflation persistence in the U.S. using long range monthly and annual data. The importance of inflation persistence is crucial to policy authorities and market participants, since the level of inflation persistence provides an indication on the susceptibility of the economy to exogenous shocks. Departing from classic econometric approaches found in the relevant literature, we evaluate persistence through the nonparametric Hurst exponent within both a global and a rolling window framework. Moreover, we expand our analysis to detect the potential existence of chaos in the data generating process, in order to enhance the robustness of conclusions. Overall, we find that inflation persistence is high from 1775 to 2013 for the annual dataset and from February 1876 to May 2014 in monthly frequency, respectively. Especially from the monthly dataset, the rolling window approach allows us to derive that inflation persistence has reached to historically high levels in the post Bretton Woods period and remained there ever since.


Keywords


Inflation; Persistence; Hurst exponent; Detrended Fluctuation Analysis; Lyapunov exponent