Dynamics of Persistence in International Inflation Rates

Authors


  • We are indebted to James Hamilton for his guidance and Katsumi Shimotsu for helpful discussion. We would also like to thank Takeo Hoshi, Bruce Lehmann, Masahito Kobayashi, Laura Kodres, Keiji Nagai, Raghu Rajan, Ken Rogoff, Yixiao Sun, Masahiko Takeda, Allan Timmermann, Kenichi Ueda, and seminar participants at the IMF, the Yokohama National University and the University of Tokyo for discussions and comments.

Abstract

Characteristics of inflation play a key role in policy formulation and market analysis. Several studies have analyzed inflation persistence and reached diverging conclusions. In this paper, we investigate the dynamics of inflation persistence using fractionally integrated processes and find that there has been a clear decline in inflation persistence in the United States over the past two decades. We also show that the presence of fractional integration in inflation successfully explains previous diverging results. Lastly, we provide some international comparisons to examine the extent to which there has been a commensurate decline in inflation persistence in the other G7 economies.

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