Inflation Persistence in the European Union, the Euro Area, and the United States

Gadzinski, Grégory; Orlandi, Fabrice

doi:10.2139/ssrn.1923587

Cited by 10 publications

(4 citation statements)

References 7 publications

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“…Levin and Piger (2004) found a structural break in the GDP deflator time series in 1993 with the twenty year measurement period started in 1984. This result was partially confirmed by Gadzinski and Orlandi (2004), who allocated breaks in various inflation series in 1992 and 1993. An early break in 1973 was estimated by Corvoisier and Mojon (2004) and Benati (2003).…”

Section: Datamentioning

confidence: 56%

Does Banque De France Control Inflation and Unemployment?

Kitov

2013

SSRN Journal

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We re-estimate statistical properties and predictive power of a set of Phillips curves, which are expressed as linear and lagged relationships between the rates of inflation, unemployment, and change in labour force. For France, several relationships were estimated eight years ago. The change rate of labour force was used as a driving force of inflation and unemployment within the Phillips curve framework. Following the original problem formulation by Fisher and Phillips, the set of nested models starts with a simplistic version without autoregressive terms and one lagged term of explanatory variable. The lag is determined empirically together with all coefficients. The model is estimated using the Boundary Element Method (BEM) with the least squares method applied to the integral solutions of the differential equations. All models include one structural break might be associated with revisions to definitions and measurement procedures in the 1980s and 1990s as well as with the change in monetary policy in 1994-1995. For the GDP deflator, our original model provided a root mean squared forecast error (RMSFE) of 1.0% per year at a four-year horizon for the period between 1971 and 2004. The same RMSFE is estimated with eight new readings obtained since 2004. The rate of CPI inflation is predicted with RMSFE=1.5% per year. For the naive (no change) forecast, RMSFE at the same time horizon is 2.95% and 3.3% per year, respectively. Our model outperforms the naive one by a factor of 2 to 3. The relationships for inflation were successfully tested for cointegration. We have formally estimated several vector error correction (VEC) models for two measures of inflation. In the VAR representation, these VECMs are similar to the Phillips curves. At a four year horizon, the estimated VECMs provide significant statistical improvements on the results obtained by the BEM: RMSFE=0.8% per year for the GDP deflator and ~1.2% per year for CPI. For a two year horizon, the VECMs improve RMSFEs by a factor of 2, with the smallest RMSFE=0.5% per year for the GDP deflator. This study has validated the reliability and accuracy of the linear and lagged relationships between inflation, unemployment, and the change in labour force between 1970 and 2012.JEL classification: C32, E31, E63, J21, J64

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Section: Datamentioning

confidence: 56%

Does Banque De France Control Inflation and Unemployment?

Kitov

2013

SSRN Journal

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“…12 SeePesaran and Smith (1995). From an econometric point of view, it would be preferable to aggregate the individual coefficients with the inverse of standard errors as weights.13 This is broadly in line with the findings for headline and core inflation ofGadzinski and Orlandi (2004) and the evidence on aggregate inflation dynamics discussed inAltissimo and others (2006). At the micro level, however,Altissmo and others (2006) find that prices changes in the euro area are less frequent (every four to five quarters) than in the United States (every two quarters).…”

mentioning

confidence: 61%

“…This is a standard way to gauge the persistence of inflation at the macroeconomic level. See, for example,Gadzinski and Orlandi (2004) and the results reported inAltissimo and others (2006). However, these papers do not consider persistence in inflation expectations.©International Monetary Fund.…”

mentioning

confidence: 90%

Gauging Risks for Deflation

Decressin

Laxton²

2009

IMF Staff Position Notes

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“…Univariate time series approaches are used in most empirical studies to estimate intrinsic inflation persistence. These tend to be autoregressive processes, with estimates of inflation persistence measured as the sum of autoregressive coefficients from univariate regressions (Levin & Piger, 2004;O"Reilly & Whelan, 2004;Gadzinski & Orlandi, 2004;Lünnemann & Mathä , 2004). The literature finds that a high proportion of measured inflation persistence estimates relates to breaks in the mean of inflation processes.…”

Section: Literature Reviewmentioning

confidence: 99%

How Do Estimates of Inflation Persistence in Malta Compare with Other EU Countries?

Micallef¹,

Ellul²

2020

IJEF

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After the European sovereign debt crisis in 2012, inflation has been unexpectedly low across most of the economies making up the euro area, as well as the Monetary Union aggregate, with economists referring to this phenomenon as the “missing inflation” puzzle. As the smallest and one of the most open economies in the euro area, Malta has also registered a period of low inflation post-2012, despite registering an average GDP growth rate of 6.9% per annum over the period 2013-2019. This paper estimates the extent of inflation persistence of Malta and a number of EU economies for both the pre- and post-2012 period. Measures of persistence are computed as the sum of autoregressive coefficients derived from univariate regressions on both aggregated and disaggregated inflation series. Estimates of persistence in Malta have increased when the sample covers the post-2012 period. In terms of the main sub-components, energy inflation has a substantially higher persistence compared to the pre-2012 period, reflecting both external and country-specific factors. Most other EU countries also reported an increase in persistence when including the post-2012 period in the sample although the estimates for Malta, both at the aggregate and disaggregated indices, remain less persistent.

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Inflation Persistence in the European Union, the Euro Area, and the United States

Cited by 10 publications

References 7 publications

Does Banque De France Control Inflation and Unemployment?

Does Banque De France Control Inflation and Unemployment?

Gauging Risks for Deflation

How Do Estimates of Inflation Persistence in Malta Compare with Other EU Countries?

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