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Inflation dynamics in the US - a nonlinear perspective

Nobay, A. Robert and Paya, Ivan and Peel, David A. (2007) Inflation dynamics in the US - a nonlinear perspective. Discussion paper, 601. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Identification Number: 601

Abstract

A stylized fact of US inflation dynamics is one of extreme persistence and possible unit root behavior. If so, the implications for macroeconomics and monetary policy are somewhat unpalatable. Our econometric analysis proposes a parsimonious representation of the inflation process, the nonlinear ESTAR, rather than the IMA process with time-varying parameters as in Stock and Watson (2007). The empirical results confirm a number of the key features such as regime changes and implicit Federal Reserve inflation targets. We address the issue of whether the source of the Great Moderation can be ascribed to good luck rather than good policy.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2007 The Authors
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 16 Jul 2009 14:54
Last Modified: 27 Feb 2014 15:35
URI: http://eprints.lse.ac.uk/id/eprint/24499

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