Structural breaks in the U.S. inflation process: a further investigation

Abstract

The selection procedure of Bai and Perron (Econometrica, 1998, 66, 47–78), based on a sequence of tests for multiple structural changes, is used to explore the empirical evidence of the instability by selecting the number of breaks and their locations for the post-war monthly U.S. inflation rate. The obtained results indicate that the U.S. inflation process is unstable after June 1982 as there is a break at the beginning of the 1990s. This conclusion contradicts that of Ben Aïssa and Jouini (Applied Economics Letters, 2003, 10, 633–6), who show that using some information criteria, the evolution curve of U.S. inflation was flattened during the last 20 years, making the process stable. Hence this points to the fact that the procedure used is more powerful than the information criteria in detecting changes.