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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

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Volume 19, Issue 2 (Apr 2015)

Issues

The changing dynamics of US inflation persistence: a quantile regression approach

Maik H. Wolters
  • Corresponding author
  • Department of Economics – University of Kiel, Wilhelm-Seelig-Platz 1, 24118 Kiel, Germany
  • Kiel Institute for the World Economy – Department of Macroeconomics, Kiellinie 66, 24105 Kiel, Germany
  • Email
  • Other articles by this author:
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/ Peter Tillmann
  • Department of Economics – Justus Liebig University of Giessen, Licher Straße 66, 35394 Giessen, Germany
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Published Online: 2014-09-19 | DOI: https://doi.org/10.1515/snde-2013-0080

Abstract

We examine both the degree and the structural stability of inflation persistence at different quantiles of the conditional inflation distribution. Previous research focused exclusively on persistence at the conditional mean of the inflation rate. As economic theory provides reasons for inflation persistence to differ across conditional quantiles, this is a potentially severe constraint. Conventional studies of inflation persistence cannot identify changes in persistence at selected quantiles that leave persistence at the mean of the distribution unchanged. Based on post-war US data we indeed find robust evidence for a structural break in persistence at all quantiles of the inflation process in the early 1980s. While prior to the 1980s inflation was not mean reverting, quantile autoregression based unit root tests suggest that since the end of the Volcker disinflation the unit root can be rejected at every quantile of the conditional inflation distribution.

This article offers supplementary material which is provided at the end of the article.

Keywords: Federal Reserve; inflation persistence; monetary policy; quantile regressions; structural breaks; unit root test

JEL classification: E31; E37; E58; C22

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About the article

Corresponding author: Maik H. Wolters, Department of Economics – University of Kiel, Wilhelm-Seelig-Platz 1, 24118 Kiel, Germany; and Kiel Institute for the World Economy – Department of Macroeconomics, Kiellinie 66, 24105 Kiel, Germany, e-mail:


Published Online: 2014-09-19

Published in Print: 2015-04-01


Citation Information: Studies in Nonlinear Dynamics & Econometrics, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2013-0080.

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