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Long Memory and Non-Linearities in International Inflation

Author

Listed:
  • Giovanni Caggiano

    (University of Padua)

  • Efrem Castelnuovo

    (University of Padua)

Abstract
This paper investigates inflation dynamics in a panel of 20 OECD economies using an approach based on the sample autocorrelation function (ACF). We find that inflation is characterized by long-lasting fluctuations, which are similar across countries and that eventually revert to a potentially time-varying mean. The cyclical and persistent behavior of inflation does not belong to the class of linear autoregressive processes but rather to a more general class of nonlinear and long memory models. Recent theoretical contributions on heterogeneity in price setting and aggregation offer a rationale to our results. Finally, we draw the monetary policy implications of our findings.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo, 2008. "Long Memory and Non-Linearities in International Inflation," "Marco Fanno" Working Papers 0076, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0076
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    References listed on IDEAS

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    More about this item

    Keywords

    AutoCorrelation Function; long-memory; inflation persistence; inflation targeting; heavy tails.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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