Detecting Multiple Breaks in Long Memory: The Case of U.S. inflation

Abstract

Multiple structural change tests by Bai and Perron (1998) are applied to the regression by Demetrescu, Kuzin and Hassler (2008) in order to detect breaks in the order of fractional integration. With this instrument we tackle time varying inflation persistence as an important issue for monetary policy. We determine not only the location and significance of breaks in persistence, but also the number of breaks. Only one signfii cant break in U.S. inflation persistence (measured by the long-memory parameter) is found to have taken place in 1973, while a second break in 1980 is not signi cant.