Inflation Persistence, Monetary Regimes and Credibility: A Long-term Perspective

Pratap, Bhanu; Singh, Swati; Kurien, Ashwin Thomas

doi:10.2139/ssrn.3892047

Cited by 2 publications

(4 citation statements)

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“…In this study, unit root tests will be utilized to empirically analyze the inflation persistence. As it is known that unit root tests depend on time series models where variables are modeled with their own lag, it can be said that the agreed approach in this study is reduced-form approach according to the classification of Pratap, Singh and Kurien (2021). There are many studies in the literature that analyzes the inflation persistence with unit root tests (e.g., Novaes 1993;Gottschalk 2003;Özcan et al 2004;Roache 2014;Oliveira and Petrassi 2014).…”

Section: Introductionmentioning

confidence: 99%

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Asymmetric Dynamics of Inflation Inertia in Non-Eurozone European Countries

Özcan

2022

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In the last twenty years, the European economy, which has faced two serious crises, nowadays tries to cope with the negative effects of the pandemic that has affected the whole world. Among all these negative effects, the one experienced by the society most is, without a doubt, high and permanent inflation. In this study, inflation inertia was analyzed with linear and non-linear unit root tests for the seven economies which are in non-Eurozone but are members of the European Union. The non-linear unit root tests used take both structural change and regime switching into account. Thanks to these tests, all none-linear dynamics that can be observed in the inflation series were included in the inflation inertia analysis. Moreover, the respective tests were aimed to obtain empirical data more sensitive to the shocks applied in time by Rolling Windows Sample approach. According to the obtained results, while inflation inertia was detected in Bulgaria, Croatia and Czechia, it was found out that Romania and Sweden economies are the ones with the least inflation inertia.

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Section: Introductionmentioning

confidence: 99%

“…As Pratap, Singh and Kurien (2021) defined, there are two basic approaches in inflation inertia modeling. The first approach models the inflation with its own lagged values, ignoring the effects of the other financial indicators.…”

Section: Introductionmentioning

confidence: 99%

Asymmetric Dynamics of Inflation Inertia in Non-Eurozone European Countries

Özcan

2022

Preprint

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“…As Pratap et al (2021) argue, there are two basic approaches to inflation inertia modeling. The first approach models the inflation with its own lagged values, ignoring the effects of the other financial indicators.…”

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confidence: 99%

“…I am going to use unit root tests to empirically analyze inflation intertia. As it is known that unit root tests depend on time series models where variables are modeled with their own lag, the approach in this study could be described as reduced-form approach according to the classification of Pratap et al (2021).…”

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Asymmetric Dynamics of Inflation Inertia in Some Selected Non-Eurozone European Countries

Özcan¹

2023

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Relevance. Inflation inertia refers to the persistence of inflation over time and can be caused by a variety of factors, including expectations about future inflation, the structure of the economy, and the behavior of economic agents. Over the past two decades, the European economy has grappled with a range of challenges and currently seeks to mitigate the negative impacts of the global pandemic. Research objective. Persistent inflation can lead to uncertainty, decreased investment, and a loss of confidence in an economy. Non-eurozone economies can also face challenges in controlling inflation due to such factors as the lack of monetary integration with the eurozone, limited access to the European Central Bank's resources, and the lack of a unified currency. Hence, for a more effective monetary policy in these countries, it is necessary to measure and understand the inflation inertia. This paper offers a novel empirical study of the dynamics of inflation inertia for seven EU economies that are not part of the eurozone. Data and methods. To achieve the research objective, three non-linear unit root tests are employed to consider both structural changes and regime switching. These tests allowed for the inclusion of almost all non-linear dynamics observed in the inflation series. In addition, the tests involve the use of the dynamic rolling windows sample approach in order to provide more sensitive measurements of the effect of time-varying shocks on inflation inertia. Results. According to the static sample analysis of 200 observations, Bulgaria, Croatia, and the Czech Republic have inflation inertia. Sweden, Romania, Hungary, and Poland do not have inflation inertia when non-linear regime switching dynamics and structural change are considered. However, Croatia and the Czech Republic show a mostly non-stationary inflation in dynamic rolling windows sampling. Hungary has persistent inflation even though it was not detected in the static sample analysis. The shocks of inflation fade out in Bulgaria, Poland, Romania, and Sweden with non-linear dynamics. If non-linear dynamics is ignored, it can lead to misleading results in economic time series. Conclusions. Inflation inertia can be influenced by a variety of factors, including the global pandemic, global or regional conflicts and monetary policy preferences. The successful management of inflation inertia in Romania and Sweden may serve as a model for other economies that have demonstrated an ability to effectively address and mitigate the challenges posed by inflation inertia.

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Inflation Persistence, Monetary Regimes and Credibility: A Long-term Perspective

Cited by 2 publications

References 47 publications

Asymmetric Dynamics of Inflation Inertia in Non-Eurozone European Countries

Asymmetric Dynamics of Inflation Inertia in Non-Eurozone European Countries

Asymmetric Dynamics of Inflation Inertia in Some Selected Non-Eurozone European Countries

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