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The changing dynamics of US inflation persistence: a quantile regression approach

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  • Wolters Maik H.

    (Department of Economics – University of Kiel, Wilhelm-Seelig-Platz 1, 24118 Kiel, Germany Kiel Institute for the World Economy – Department of Macroeconomics, Kiellinie 66, 24105 Kiel, Germany)

  • Tillmann Peter

    (Department of Economics – Justus Liebig University of Giessen, Licher Straße 66, 35394 Giessen, Germany)

Abstract

We examine both the degree and the structural stability of inflation persistence at different quantiles of the conditional inflation distribution. Previous research focused exclusively on persistence at the conditional mean of the inflation rate. As economic theory provides reasons for inflation persistence to differ across conditional quantiles, this is a potentially severe constraint. Conventional studies of inflation persistence cannot identify changes in persistence at selected quantiles that leave persistence at the mean of the distribution unchanged. Based on post-war US data we indeed find robust evidence for a structural break in persistence at all quantiles of the inflation process in the early 1980s. While prior to the 1980s inflation was not mean reverting, quantile autoregression based unit root tests suggest that since the end of the Volcker disinflation the unit root can be rejected at every quantile of the conditional inflation distribution.

Suggested Citation

  • Wolters Maik H. & Tillmann Peter, 2015. "The changing dynamics of US inflation persistence: a quantile regression approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(2), pages 161-182, April.
    • Handle: RePEc:bpj:sndecm:v:19:y:2015:i:2:p:161-182:n:4
    DOI: 10.1515/snde-2013-0080
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    More about this item

    Keywords

    Federal Reserve; inflation persistence; monetary policy; quantile regressions; structural breaks; unit root test;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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