The changing dynamics of US inflation persistence: a quantile regression approach : [Version 4 September 2012]

We examine both the degree and the structural stability of inflation persis tence at different quantiles of the conditional inflation distribution. Previous research focused exclusively on persistence at the conditional 
We examine both the degree and the structural stability of inflation persis tence at different quantiles of the conditional inflation distribution. Previous research focused exclusively on persistence at the conditional mean of the inflation rate. Economic theory, however, provides various reasons -for example downward wage rigidities or menu costs- to expect higher inflation persistence at the upper than at the lower tail of the conditional inflation distribution.
Based on post-war US data we indeed find slower mean reversion in response to positive than to negative shocks. We find robust evidence for a structural break in persistence at all quantiles of the inflation process in the early 1980s. Inflation persistence has decreased and become more homogeneous across quantiles. Persistence at the conditional mean became more informative about the degree of persistence across the entire conditional inflation distribution. While prior to the 1980s inflation was not mean reverting in response to large positive shocks, our evidence strongly suggests that since the end of the Volcker disinflation the unit root can be rejected at every quantile including the upper tail of the conditional inflation distribution.
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Metadaten
Author:Peter Tillmann, Maik Hendrik Wolters
URN:urn:nbn:de:hebis:30:3-268734
URL:http://www.imfs-frankfurt.de/fileadmin/user_upload/pdf/IMFS_WP_60.pdf
Parent Title (German):Working paper series / Institute for Monetary and Financial Stability ; 60
Series (Serial Number):Working Paper Series : Institute for Monetary and Financial Stability (60)
Document Type:Working Paper
Language:English
Year of Completion:2012
Year of first Publication:2012
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2012/11/07
Tag:Federal Reserve; inflation persistence; monetary policy; quantile regressions; structural breaks
Issue:Version 4 September 2012
Pagenumber:30
Institutes:Wirtschaftswissenschaften
Institute for Monetary and Financial Stability (IMFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C32 Time-Series Models; Dynamic Quantile Regressions (Updated!)
E31 Price Level; Inflation; Deflation
E58 Central Banks and Their Policies
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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