Has Euro-area inflation persistence changed over time?

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Title: Has Euro-area inflation persistence changed over time?
Authors: O'Reilly, Gerard
Whelan, Karl
Permanent link: http://hdl.handle.net/10197/251
Date: Apr-2004
Online since: 2008-06-16T15:47:02Z
Abstract: This paper analyzes the stability over time of the econometric process for Euro-area inflation since 1970, focusing in particular on the behaviour of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the Euro-area inflation process. Full-sample estimates of the persistence parameter are generally close to one, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New-Keynesian Phillips curve.
Type of material: Working Paper
Publisher: European Central Bank
Series/Report no.: Working Paper Series; No. 335
Copyright (published version): Copyright Central Bank, 2004
Keywords: Inflation persistenceEuro AreaLucas Critique
Subject LCSH: Inflation (Finance)--Europe
Inflation (Finance)--Mathematical models
Euro area
Other versions: http://www.ecb.int/pub/pdf/scpwps/ecbwp335.pdf
Language: en
Status of Item: Peer reviewed
Appears in Collections:Economics Research Collection

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