Faculty of Economics and Business Administration Publications Database

Detecting Multiple Breaks in Long Memory the Case of U.S. Inflation

Meller, Barbara
Month: March
ISSN-Print: 0377-7332
Link External Source: Online Version
Year: 2013
Keywords: Fractional Integration; Break in Persistence; Unknown Break Point; Inflation Dynamics
Abstract: Multiple structural change tests by Bai and Perron (Econometrica 66:47–78, 1998) are applied to the regression by Demetrescu et al. (Econ Theory 24:176–215, 2008) in order to detect breaks in the order of fractional integration. With this instrument we tackle time-varying inflation persistence as an important issue for monetary policy. We determine not only the location and significance of breaks in persistence, but also the number of breaks. Only one significant break in U.S. inflation persistence (measured by the long-memory parameter) is found to have taken place in 1973, while a second break in 1980 is not significant.