the fisher hypothesis and the forecastability and persistence of inflation abstract for the period 1860 to 1939 the simple correlation of the u s commercial paper rate with the contemporaneous inflation rate is 0 17 the corresponding correlation for the period 1950 to 1979 is 0 71 this paper attributes this apparent change in the fisher relation to differences in the stochastic process of inflation rather than a change in any structural relationship between interest rates and expected inflation contrary to recent claims in the literature there is little evidence of inflation non neutrality in data from the pre world war i period

testing for the long run relationship between nominal interest rates and inflation using cointegration techniques 1989 testing for the long run relationship between nominal interest rates and inflation using cointegration techniques applied economics vol 21 no 4 pp 439 447

are higher levels of inflation less predictable a state dependent conditional heteroscedasticity approach milton friedman proposed that there is a positive relationship between inflation and uncertainty about the future path of inflation in contrast to previous studies of this hypothesis we find strong statistical evidence that higher levels of inflation are less predictable although innovations in inflation are somewhat better predictors of future volatility than the actual level of inflation we argue that previous failures to find an inflation uncertainty relationship are due to two factors first none of the previous work directly tested friedman s hypothesis by including the level of inflation in the model of the conditional variance second these studies also used symmetric models which appears inconsistent with friedman s hypothesis our results are robust to different sample periods and to assumptions about the presence of a unit root in inflation to test the inflation uncertainty hypothesis we use state dependent models sdm s of conditional moments to estimate the time varying conditional v

persistence in international inflation rates we test for fractional dynamics in inflation rates based on the consumer price index cpi for 27 countries and inflation rates based on the wholesale price index wpi for 22 countries the fractional differencing parameter is estimated using semiparametric and approximate maximum likelihood methods significant evidence of fractional dynamics with long memory features is found in both cpi and wpi based inflation rates for industrial as well as developing countries implications of the findings are considered and sources of long memory are hypothesized

what is fractional integration a simple construction that will be referred to as an error duration model is shown to generate fractional integration and long memory an error duration representation also exists for many familiar arma models making error duration an alternative to autoregression for explaining dynamic persistence in economic variables the results lead to a straightforward procedure for simulating fractional integration and establish a connection between fractional integration and common notions of structural change two examples show how the error duration model could account for fractional integration in aggregate employment and in asset price volatility

further long memory properties of inflationary shocks several previous studies have found fractionally integrated or long memory behavior in the conditional mean of inflation this paper notes that extremely similar phenomena are also apparent in the squared and absolute values of residuals from fractionally filtered inflation series hence the inflation process appears to have a dual long memory feature in both its first and its second conditional moments we suggest a parametric model of long memory in both the conditional mean and the conditional variance some monte carlo evidence is presented that supports estimation of the model by approximate maximum likelihood methods we then report estimated models for the inflation series for several different industrialized countries including the united states for nearly all of the countries in our study there is strong evidence of statistically significant long memory parameters in both the conditional mean and the variance we note some of the implications for modeling inflation

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

analysing inflation by the fractionally integrated arfima garch model this paper considers the application of long memory processes to describing inflation for ten countries we implement a new procedure to obtain approximate maximum likelihood estimates of an arfima garch process which is fractionally integrated i d with a superimposed stationary arma component in its conditional mean additionally this long memory process is allowed to have garch type conditional heteroscedasticity on analysing monthly post world war ii cpi inflation for ten different countries we find strong evidence of long memory with mean reverting behaviour for all countries except japan which appears stationary for three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the friedman hypothesis

inflation persistence and nonlinearities in central and eastern european countries abstract in this paper we provide an insight into the inflation dynamics in a panel of central and eastern european countries applying unit root tests and allowing for nonlinearities we show that inflation rates in more than half of these countries are stationary

reassessing the integration of european electricity markets a fractional cointegration analysis this study extends existing literature on the assessment of electricity market integration in europe by developing and testing hypotheses on the convergence of electricity wholesale prices and adopting a time varying fractional cointegration analysis in addition the potential impacts of some special events that may affect system capacity new interconnection market coupling increase in share of intermittent generation on spot and forward markets are considered and evaluated daily spot prices from february 2000 to march 2013 of nine european electricity spot markets apx uk apx nl belpex epex fr epex de ipex nordpool omel and ote and month ahead prices in four markets french british german and dutch from november 2007 to december 2012 are investigated results show that unit root tests which are generally used in the literature to test market integration are inadequate for assessing electricity spot market convergence because spot prices are found to be fractionally integrated and mean reverting time series furthermore spot price behaviour and their association with different markets change over time reflecting changes in the eu electrical system one month ahead prices by contrast were found to have become more resilient to shocks and to follow more stable trends

long memory in inflation rates international evidence we examine monthly inflation rates of five industrial countries the application of tests against stationarity as well as tests against a unit root yield contradictory results thus fractional integration allowing for long memory is a plausible model we discuss and apply the periodogram regression to estimate the difference parameters for all countries we find estimates significantly different from 1 as well as from 0 this is evidence in favor of long memory specification tests and maximum likelihood estimates support the fitted models finally we relate our empirical results to the construction of the data

long memory and aggregation in macroeconomic time series this paper explores the interaction between long memory and aggregation results are derived which link the possibly fractional orders of integration of the aggregate series with those of the underlying series when the aggregation is either cross sectional or temporal in discrete or continuous time these results provide empirically testable hypotheses that are examined using six u k macroeconomic series a semiparametric method is found to be broadly consistent with the implications of the theory but fully parametric arfima models show considerable variation each series appears to be integrated of an order of between one and one and a half

long memory or structural changes an empirical examination on inflation rates abstract the modified local whittle method is proposed for testing long memory when the data have structural changes we apply it to analyze monthly g7 inflation rates empirical results show that for germany and japan the long memory phenomenon may just be a consequence of structural changes and that for other countries the inflation rates may have both long memory and structural changes

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

dynamics of persistence in international inflation rates characteristics of inflation play a key role in policy formulation and market analysis several studies have analyzed inflation persistence and reached diverging conclusions in this paper we investigate the dynamics of inflation persistence using fractionally integrated processes and find that there has been a clear decline in inflation persistence in the united states over the past two decades we also show that the presence of fractional integration in inflation successfully explains previous diverging results lastly we provide some international comparisons to examine the extent to which there has been a commensurate decline in inflation persistence in the other g7 economies

unobserved component time series models with markov switching heteroscedasticity changes in regime and the link between inflation rates and inflation uncertainty in this article i first extend the standard unobserved component time series model to include hamilton s markov switching heteroscedasticity this will provide an alternative to the unobserved component model with autoregressive conditional heteroscedasticity as developed by harvey ruiz and sentana and by evans and wachtel i then apply a generalized version of the model to investigate the link between inflation and its uncertainty u s data gross national product deflator 1958 1 1990 4 i assume that inflation consists of a stochastic trend random walk component and a stationary autoregressive component following ball and cecchetti and a four state model of u s inflation rate is specified by incorporating regime shifts in both mean and variance structures i analyze the interaction of mean and variance over long and short horizons the empirical results show that inflation is costly because higher inflation is associated with higher long run uncertainty

long memory in us disaggregated petroleum consumption evidence from univariate and multivariate lm tests for fractional integration previous studies that have tested for a unit root in aggregate energy consumption have potentially reached misleading conclusions because they fail to allow for the possibility that energy consumption might be fractionally integrated and do not distinguish between different types of energy consumption this study tests for long memory in disaggregated petroleum consumption in the united states using univariate and multivariate lagrange multiplier lm tests for fractional integration the results point strongly to the need to distinguish between different forms of energy consumption and allow for a generalization of the i 0 i 1 dichotomy when considering the order of integration of energy consumption allowing for short run dynamics the univariate test suggests that less than 50 of the series are fractionally integrated consistent with expectations the non stationary series are found to have the highest mean and standard deviation the multivariate test suggests that petroleum consumption in the commercial and industrial sectors is clearly fractionally integrated when allowing for short run dynamics and as such exhibits persistent effects while petroleum consumption in the residential sector is a stationary process

regime shifts implications for dynamic strategies corrected regime shifts present significant challenges for investors because they cause performance to depart significantly from the ranges implied by long term averages of means and covariances but regime shifts also present opportunities for gain the authors show how to apply markov switching models to forecast regimes in market turbulence inflation and economic growth they found that a dynamic process outperformed static asset allocation in backtests especially for investors who seek to avoid large losses

customs union and unemployment in ldcs abstract welfare effects of customs union are examined for a small open economy with unemployment of labor of harris todaro type and some new results are reported specifically it is demonstrated that for ldcs afflicted with urban unemployment trade creating customs union continues to be an effective policy

the dynamics of persistence in us inflation abstract using a recently developed time series approach we show that post wwii us inflation became highly persistent during the great inflation period and then switched back to a low persistence process during 1984 and has remained stationary until the present day

us inflation dynamics on long range data in this article we evaluate inflation persistence in the united states using long range monthly and annual data the importance of inflation persistence is crucial to policy authorities and market participants since the level of inflation persistence provides an indication on the susceptibility of the economy to exogenous shocks departing from classic econometric approaches found in the relevant literature we evaluate inflation persistence through the nonparametric hurst exponent within both a global and a rolling window framework moreover we expand our analysis to detect the potential existence of chaos in the data generating process in order to enhance the robustness of our conclusions overall we find that inflation persistence is high from 1775 to 2013 for the annual data set and from february 1876 to may 2014 in monthly frequency respectively especially from the monthly data set the rolling window approach allows us to derive that inflation persistence has reached to historically high leve

implications for minimum wage policies of an s shaped labor supply curve abstract a model of family labor supply provides a rationale for raising minimum wages when the labor supply response is negative at low wages under those circumstances the labor market can be caught in a malthusian poverty trap of excess supply unemployment overextended workdays child labor and falling wages raising minimum wages may therefore help resorb this excess supply and stabilize the labor market setting a virtuous cycle in motion in a two sector context such a policy would increase wages in both the covered and uncovered sectors evidence from a study of costa rica in particular is consistent with those conclusions

is there a unit root in the inflation rate evidence from sequential break and panel data models summary using sequential trend break and panel data models we investigate the unit root hypothesis for the inflation rates of thirteen oecd countries with individual country tests we find evidence of stationarity in only four of the thirteen countries the results are more striking with the panel data model we can strongly reject the unit root hypothesis both for a panel of all thirteen countries and for a number of smaller panels consisting of as few as three countries the non rejection of the unit root hypothesis for inflation is very fragile to even a small amount of cross section variation 1997 john wiley sons ltd