Long Memory and Level Shifts: Re-Analyzing Inflation Rates

Posted: 23 Sep 1999

See all articles by Charles S. Bos

Charles S. Bos

VU University Amsterdam

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics

Marius Ooms

VU University Amsterdam - Department of Econometrics

Abstract

A key application of long memory time series models concerns inflation. Long memory implies that shocks have a long-lasting effect. It may however be that empirical evidence for long memory is caused by neglecting one or more level shifts. Since such level shifts are not unlikely for inflation, where the shifts may be caused by sudden oil price shocks, we examine whether evidence for long memory (indicated by the relevance of an ARFIMA model) in G7 inflation rates is spurious or exaggerated. Our main findings are that apparent long memory is quite resistant to level shifts, although for a few inflation rates we find that evidence for long memory disappears.

JEL Classification: C22, E31

Suggested Citation

Bos, Charles S. and Franses, Philip Hans and Ooms, Marius, Long Memory and Level Shifts: Re-Analyzing Inflation Rates. Available at SSRN: https://ssrn.com/abstract=179539

Charles S. Bos (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://personal.vu.nl/c.s.bos

Philip Hans Franses

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1278 (Phone)
+31 10 408 9162 (Fax)

Marius Ooms

VU University Amsterdam - Department of Econometrics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands
+31 20 4446023 (Phone)
+31 20 4446020 (Fax)

HOME PAGE: http://econometriclinks.com

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