Inflation Series Research Articles

Trend Inflation in Advanced Economies

We derive estimates of trend inflation for fourteen advanced economies from a framework in which trend shocks exhibit stochastic volatility. The estimated specification allows for time-variation in the degree to which longer-term inflation expectations are well anchored in each economy. Our results bring out the effect of changes in monetary regime (such as the adoption of inflation targeting in several countries) on the behavior of trend inflation. Our estimates expand on the previous literature in several dimensions: For each country, we employ a multivariate approach that pools different inflation series in order to identify their common trend. In addition, our estimates of the inflation gap—defined as the difference between trend and observed inflation—are allowed to exhibit considerable persistence. Consequently, the fluctuations in estimates of trend inflation are much lower than those reported in studies that use stochastic volatility models in which inflation gaps are serially uncorrelated. This specification also makes our estimates less sensitive than trend estimates in the literature to the effect of distortions to inflation arising from non-market influences on prices, such as tax changes. A forecast evaluation based on pseudo-real-time estimates documents improvements in inflation forecasts, even though it remains hard to outperform simple random walk forecasts to a statistically significant degree.

The stylized facts of Greek inflation: New evidence on persistence

This paper contributes to the existing empirical literature of inflation persistence by providing results on the level of inflation persistence for the Greek economy using an inflation series on both the aggregated and the disaggregated level. The empirical findings reveal substantial homogeneity across sectors as well as across price indices. These results suggest a very moderate degree of inflation persistence for both aggregate and disaggregate price indices. The results point to the need to account for the presence of a structural break typically related to the ?Maastricht effect?; and entailed a structural increase in the persistence measure, though the average level of inflation declined. This could be a piece of evidence that although the monetary component of inflation in Greece was neutralized due to the implementation of the monetary policy by a central monetary authority, other idiosyncratic characteristics of the Greek inflation contribute to this persistent structure of the inflation series.

Long memory with stochastic variance model: A recursive analysis for US inflation

The time series characteristics of postwar US inflation have been found to vary over time. The changes are investigated in a model-based analysis where the time series of inflation is specified by a long memory autoregressive fractionally integrated moving average process with its variance modelled by a stochastic volatility process. Estimates of the parameters are obtained by a Monte Carlo maximum likelihood method. A long sample of monthly core inflation is considered in the analysis as well as subsamples of varying length. The empirical results reveal major changes in the variance, in the order of integration, in the short memory characteristics, and in the volatility of volatility. The findings provide further evidence that the time series properties of inflation are not stable over time.

Tracheal occlusion conditioning causes stress, anxiety and neural state changes in conscious rats

Evidence from human and animal studies indicates that mechanical loads to breathing are stressful stimuli and evoke compensatory behaviours. Conditioning of stressful stimuli is known to cause changes in basal stress levels and behaviour. Individuals with respiratory obstructive diseases repeatedly experience bouts of airway obstruction, which may act as a form of conditioning, and often have affective disorders, such as anxiety and depression. It is unknown whether the development of affective disorders in these individuals results from the unexpected recurring respiratory perturbations. To investigate this possibility, we developed a model to elicit tracheal occlusion (TO) in conscious rats and exposed them to 10 days of TO conditioning. We hypothesized that healthy, conscious animals exposed to TO conditioning would develop stress and anxiety and would have modulated neural activity in respiratory, stress, discriminative and affective neural regions. Following TO conditioning, rats had increased basal corticosterone levels, greater adrenal weights and elevated anxiety levels compared with animals not receiving TO. Significant increases in cytochrome oxidase staining were found in brainstem respiratory nuclei, periaqueductal grey, dorsal raphe, thalamus and insular cortex. These results suggest that healthy animals develop stress and anxiety responses to respiratory load conditioning via inescapable tracheal occlusions, which may be mediated through state changes in specific brain nuclei.

Adaptive ARFIMA models with applications to inflation

Many previous analyses of inflation have used either long memory or nonlinear time series models. This paper suggests a simple adaptive modification of the basic ARFIMA model, which uses a flexible Fourier form to allow for a time varying intercept. Simulation evidence suggests that the model provides a good representation of various forms of structural breaks and also that the new model can be efficiently estimated by a QMLE approach. We investigate monthly CPI inflation series for the G7 countries and find evidence of stable long memory parameters across regimes and also of significant nonlinear effects. The estimated adaptive ARFIMA models generally have less persistent long memory parameters than previous studies, with the estimated time dependent intercept being an important component. The model is also supplemented with an adaptive FIGARCH component, yielding a double nonlinear long memory model.

Heterogeneous Response of Disaggregate Inflation to Monetary Policy Regime Change: What Can Be Learned from Canada’s Adoption of Inflation Targeting?

This paper explores the impact of monetary policy regime change on sectoral and regional inflation by analyzing the case of Canada and its adoption of inflation targeting (IT). Using disaggregated CPI data for Canada from 1978, we find that responses to the change in the monetary policy framework are quite heterogeneous, particularly across sectors. While inflation series in the traditionally volatile commodity sectors exhibit weak responses to the regime change, those in the so-called core sectors are highly responsive. This pattern is evident in both national and provincial level data, indicating that it is the core sectors that are crucial for the transmission of a monetary policy regime change. Further analysis based on a common factor model reveals that common shocks, such as those associated with the monetary policy framework, account for only a small portion of the variation in sectoral inflation, and that their relative importance has decreased after IT adoption in many core sectors. Interestingly, considerable variation exists even across the core sectors in the strength of the regime change effect. We document that this heterogeneity is meaningfully correlated with some measurable sector-specific characteristics; sectors with a lower degree of prices stickiness and a lower degree of tradability appear more sensitive to the change in monetary policy regime.

Inflation targeting and inflation management in Ghana

PurposeThe Ghanaian economy has experienced relative stability, improved macroeconomic performance and resilience over the past few years, following the introduction of a new monetary policy framework called inflation targeting (IT). The purpose of this paper is to look at IT and its effect on inflation management in Ghana.Design/methodology/approachThe study employed monthly time series data from 1980 to 2009.FindingsThe results gathered in this study demonstrate that IT has had a significant impact on the reduction of inflation series in recent years and has reduced the persistence of inflation series considerably. It is largely amplified that the implementation of an IT framework in Ghana has been a success and has contributed to a change in the conduct of monetary policy towards best practice.Research limitations/implicationsThe study could have used a lot more macroeconomic variables.Practical implicationsThe paper's findings are very important for Central Banks that are using the IT framework, or planning to do so, for efficiency and effectiveness.Originality/valueThe paper is the first of its kind for developing countries, especially in Africa and Ghana for that matter.

Structural changes and regional disparity in China's inflation: a revisit

The study re-examined the time series properties and regional disparities in Chinese inflation by extending the work of Chong, Zhang, and Feng (2011). For this purpose we employed the Lagrange Multiplier (LM) unit root test with one structural break and two structural breaks suggested by Lee and Strazicich (2003, 2004) and a recently developed ADF type unit root test with two structural breaks of Narayan and Popp (2010). We found that national, urban and rural series of the overall inflation series, clothing, and food, national series of education and residence and the rural series of residence and education are stationary. We also found regional disparity in Chinese inflation, but the disparities existed only in education inflation series.

Türkiye ve Seçili AB Ülkeleri Açısından Enflasyon Sürekliliğinin Analizi

In terms of implementation and provision of success of economic policies, it is an important issue that the resulting shocks in macro variables caused from a variety of reasons are temporary or permanent. The comprehension that increases policy makers’ credibility and also mediates the formation of expectations management on economic units causes a more stable economic process when this comprehension perceives the response rate given to the shocks in macro variables. This study searches the persistence of inflation for 11 EU countries and Turkey reaches the following evidence; for Germany, Italy and Portugal, an inflation existing after a shock converges fast to its own average value, the inflation series related to these countries is stationary and inflation persistence has remained at a low-level for these countries. When the Lucas criticism is considered, inflation returns to it’s own average level rapidly and the inflation persistence is in a low level for Germany, Austria, Finland, France, Netherland and Italy.

A combined measure of UK core inflation estimates

This article estimates UK core inflation in a structural Vector Autoregression (VAR) framework. While building on the work of Quah and Vahey (1995), we extend their two-variable VAR model to allow for different dynamics depending on the nature of the shocks that potentially influence the process of core inflation. We also construct a combined measure of core inflation estimates on the basis of their reliabilities. Empirical evidence shows that the new measures demonstrate marked improvement in their eligibility to serve as core inflation estimators. Furthermore, the combined measure is shown to perform best. It appears that the conventional core measures such as the retail prices excluding mortgage interest payments (RPIX) and the Harmonized Index of Consumer Prices (HICP) inflation series are not successful in capturing the underlying trend of inflation, casting some doubt on their current use in the making of monetary policy decisions.

Forecasting Nonlinear Aggregates and Aggregates with Time-varying Weights

Summary Despite the fact that many aggregates are nonlinear functions and the aggregation weights of many macroeconomic aggregates are time-varying, much of the literature on forecasting aggregates considers the case of linear aggregates with fixed, time-invariant aggregation weights. In this study a framework for nonlinear contemporaneous aggregation with possibly stochastic or time-varying weights is developed and different predictors for an aggregate are compared theoretically as well as with simulations. Two examples based on European unemployment and inflation series are used to illustrate the virtue of the theoretical setup and the forecasting results.

Forecasting Inflation with Gradual Regime Shifts and Exogenous Information

We propose a new method for medium-term forecasting using exogenous information. We first show how a shifting-mean autoregressive model can be used to describe characteristic features in inflation series. This implies that we decompose the inflation process into a slowly moving nonstationary component and dynamic short-run fluctuations around it. An important feature of our model is that it provides a way of combining the information in the sample and exogenous information about the quantity to be forecast. This makes it possible to form a single model-based inflation forecast that also incorporates the exogenous information. We demonstrate, both theoretically and by simulations, how this is done by using the penalised likelihood for estimating the model parameters. In forecasting inflation, the central bank inflation target, if it exists, is a natural example of such exogenous information. We illustrate the application of our method by an out-of-sample forecasting experiment for euro area and UK inflation. We find that for euro area inflation taking the exogenous information into account improves the forecasting accuracy compared to that of a number of relevant benchmark models but this is not so for the UK. Explanations to these outcomes are discussed. JEL Classification: C22, C52, C53, E31, E47

Standard and seasonal long memory in volatility: an application to Spanish inflation

The historical series of many economic variables, such as inflation, are characterized by a strong persistent behaviour in the form of long memory, not only in the long run or at zero frequency but often also at seasonal frequencies. In financial series, long memory is not apparent in levels but strong persistence in higher order moments such as volatility has been proven to be a stylized fact in stock returns. Interest in economic time series has, however, focused on the persistence of levels and little attention has been paid to higher order dependence, which can be important for assessing the stability of the series. We propose a semiparametric analysis of the standard and seasonal persistence of the volatility of a monthly Spanish inflation series. The conclusions can be summarized in three main results. First volatility shows strong persistence implying an unstable trend in prices, but its structure depends on the proxy used, the absolute values, the squares or the logarithms of squares. Second, the structure of the persistence of volatility changed with the first oil crisis in 1973, with a persistent trend in both periods, in contrast with levels. Third, the Taylor effect, which is well documented in financial series, does not apply in this series.

Long Memory and Estimation of Memory Parameters: Nigerian and US Inflation Rates

Most economic series have been analyzed on the assumption that they are integrated of order d that is I(d), where d is an integer. Such series exhibit a short memory process characterized with exponential decay in the autocorrelation function (ACF) sometimes with alternating signs after dth order of difference. However, evidence of long memory and persistent autocorrelations characterized by (fractional integration) has been documented in literature for many economic series. Thus results of analysis based on wrong assumptions of the order of integration will produce biased estimates and unreliable forecast values. This paper therefore focuses on investigating the existence or otherwise of long memory in the Nigerian and US inflation series using some standard tests. It also seeks to estimate the memory parameters if it exists using the parametric and non-parametric methods. Even though the US inflation is fractionally integrated and Nigerian inflation series has unit root, the linear model specified for them are not adequate. The residual analyses shows evidence of nonlinearity and ARCH effect implying suggesting that nonlinear models or generalized autoregressive conditional heteroscedastic models may be appropriate for the series.

Inflation persistence, inflation expectations, and monetary policy in China

This paper constructs a quarterly series of GDP deflator inflation for China from 1979 to 2009 and tests for a structural break with an unknown change point in the dynamic inflation process. Empirical results suggest a significant structural change in inflation persistence. Employing a counterfactual simulation method, we show that the structural change is primarily attributed to better conduct of monetary policy and the resultant better anchored inflation expectations. This finding implies that the quiescence of inflation in China over the past decade could well be followed by a return to a high inflation era in the absence of a determined effort by the monetary authorities in managing inflation expectations. Therefore, the use of a preemptive monetary policy to anchor inflationary expectations and to keep inflation moderate is warranted in China.

Assessing French inflation persistence with impulse saturation break tests and automatic general-to-specific modelling

This article has three different motivations. Firstly, we wish to contribute to the debate on whether French inflation has been persistent since the mid-eighties. Empirical evidence in this domain has been mixed. We use the standard method of testing for breaks in the mean of the inflation series to conclude whether possible unit root findings are the result of neglected breaks. Then, we build standard autoregressive representations of inflation, using an automatic general-to-specific approach. We conclude against inflation persistence in the sample period, and the point estimates of persistence we obtain are several percentage points below those achieved with other break tests and model selection methods. Moreover, our final model is congruent. Secondly, we provide the first empirical application of the new impulse saturation break test. The resulting estimates of the break dates are in line with other literature findings and have a sound economic meaning, confirming the good performance the test had revealed in theoretical and simulation studies. Finally, we also illustrate the shortcomings of the Bai–Perron test when applied to a small sample with high serial correlation. Indeed, we show the Bai–Perron break dates’ estimates would not allow us to build a congruent autoregressive representation of inflation.

Seasonal and Periodic Long Memory Models in the Inflation Rates

This paper considers the application of long memory processes to describe inflation with seasonal behaviour. We use three different long memory models taking into account the seasonal pattern in the data. Namely, the ARFIMA model with deterministic seasonality, the ARFISMA model, and the periodic ARFIMA (PARFIMA) model. These models are used to describe the inflation rates of four different countries, USA, Canada, Tunisia, and South Africa. The analysis is carried out using the Sowell's (1992) maximum likelihood techniques for estimating ARFIMA model and using the approximate maximum likelihood method for the estimation of the PARFIMA process. We implement a new procedure to obtain the maximum likelihood estimates of the ARFISMA model, in which dummies variables on additive outliers are included. The advantage of this parametric estimation method is that all parameters are estimated simultaneously in the time domain. For all countries, we find that estimates of differencing parameters are significantly different from zero. This is evidence in favour of long memory and suggests that persistence is a common feature for inflation series. Note that neglecting the existence of additive outliers may possibly biased estimates of the seasonal and periodic long memory models.

The Measurement of Rent Inflation

Providing for shelter represents a large portion of the typical household budget. Accordingly, rent, paid either to a landlord or to oneself as an owner-occupant, has a large weight in the CPI and in the personal consumption expenditures deflator, resulting in substantial scrutiny of how tenant rent and owners’ equivalent rent are measured in these price indexes. In this paper, we describe how the Bureau of Labor Statistics (BLS) estimates tenant rent and owners’ equivalent rent. We then estimate alternative inflation rates for tenant rent and owners’ equivalent rent based on American Housing Survey data, following BLS methodology as closely as possible. Our alternative tenant rent inflation series is generally consistent with the corresponding BLS series. However, our alternative owners’ equivalent rent inflation series is consistently lower than the corresponding BLS series by an amount large enough to have a significant effect on the overall inflation rate. This result is driven by the inverse relationship between rent inflation and the level of monthly housing cost evident in the American Housing Survey data.

Forecasting Nonlinear Aggregates and Aggregates with Time-varying Weights

Despite the fact that many aggregates are nonlinear functions and the aggregation weights of many macroeconomic aggregates are time-varying, much of the literature on forecasting aggregates considers the case of linear aggregates with fixed, time-invariant aggregation weights. In this study a framework for nonlinear contemporaneous aggregation with possibly stochastic or time-varying weights is developed and different predictors for an aggregate are compared theoretically as well as with simulations. Two examples based on European unemployment and inflation series are used to illustrate the virtue of the theoretical setup and the forecasting results.

A Single Center Retrospective Comparison of Double Balloon and Spiral Enteroscopy

Purpose: To compare double balloon and spiral enteroscopy. Methods: The following is a retrospective comparison of patients evaluated with either modality for suspected pathology of the small bowel at a single tertiary referral center by a single operator with an assistant. Between May and August 2006, 20 patients underwent 20 antegrade DBE (Double Balloon Enteroscopy) procedures. Between July and October 2008, 20 patients underwent 20 antegrade SE procedures. Indications included obscure gastrointestinal bleeding, gastrointestinal bleeding with prior suspected lesions and abdominal pain. All patients had multiple prior evaluations including upper endoscopies, colonoscopies and/ or VCEs. For DBE the EN-450 T5 200cm enteroscope with TS-12140 145cm overtube (Fujinon Inc, Wayne, NJ) and for SE the Fujinon enteroscope noted above or the Olympus SIF 180 enteroscope with the single use Endo-Ease SB overtube (Spirus Medical Inc, Stoughton, MA) was employed. Patients completed a clear liquid diet the evening before. All procedures were performed under deep sedation by anesthesia personnel and led by a single operator with an assistant according to accepted published techniques. With the DBE both the endoscope and overtube have balloons at their tips and through a series of inflations and deflations the enteroscope is advanced through the small intestine. With SE the small bowel is engaged and spiraled onto the overtube permitting deep enteroscopy. Results: Comparisons were made including procedure time, estimated depth of insertion, indications, and findings. Mean estimated length of small bowel traversed from pylorus with DBE and SE was 221+/−66.6 cm and 242+/−49.4 cm, respectively, with a mean procedure time of 52.4+/−18.1 min and 30.3+/−9.41 min, respectively. In the DBE arm and SE arm, nine and eleven abnormalities of the small bowel were identified, respectively, including: arteriovenous malformations, erythematous mucosa, ulcers, lymphagectasias, diverticulae and masses. In some cases esophageal, gastric, duodenal, and colonic abnormalities not noted in prior studies were observed during DBE/SE. Therapeutic actions including argon plasma coagulation and clipping or diagnostic actions including biopsy were performed in four DBEs and four SEs. No immediate or long term complications were observed. Conclusion: In this short series we have demonstrated that SE is as safe as DBE and comparatively effective in the exploration, diagnosis and management of small bowel pathology. Most importantly, we were able to navigate through greater distances (P-value 0.264437) of small bowel in statistically significant (P-value 0.000021) shorter periods of time with SE compared to DBE - an important finding given the substantial time required by DBE.