Identifying Changes in Mean, Seasonality, Persistence and Volatility for G7 and Euro Area Inflation


  • We gratefully acknowledge financial assistance from the Bank of England for the project ‘International Aspects of Macroeconomic Volatility’, under which this work was initiated. However, the Bank bears no responsibility for the contents of this article. We would also like to thank two referees of the BULLETIN, who provided constructive feedback on an earlier version of the article. The Gauss code made available by Pierre Perron and Zhongjun Qu on their websites has been modified and extended for our analysis. The first and second authors further acknowledge financial assistance from the UK Economic and Social Research Council (ESRC), under awards PTA-026-27-1592 and RES-062-23-1351 respectively.


We propose an iterative decomposition that tests and accounts for multiple structural breaks in the mean, seasonality, dynamics and conditional volatility, while also accounting for outliers. Considering each component separately within each iteration leads to greater flexibility compared with joint procedures. Monte Carlo analysis shows the procedure performs well. Applied to monthly CPI inflation in G7 countries and the Euro area, we uncover mean and seasonality breaks for all countries and, allowing for these, changes in persistence are generally also indicated. Further, volatility reductions are widespread in the early to mid 1980s, with some countries exhibiting increases from 1999 onwards.