Identifying changes in mean, seasonality, persistence and volatility for G7 and Euro area inflation

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Abstract

We propose an iterative decomposition that tests and accounts for multiple structural breaks in the mean, seasonality, dynamics and conditional volatility, while also accounting for outliers. Considering each component separately within each iteration leads to greater flexibility compared with joint procedures. Monte Carlo analysis shows the procedure performs well. Applied to monthly CPI inflation in G7 countries and the Euro area, we uncover mean and seasonality breaks for all countries and, allowing for these, changes in persistence are generally also indicated. Further, volatility reductions are widespread in the early to mid 1980s, with some countries exhibiting increases from 1999 onwards. © 2013 The Department of Economics, University of Oxford and JohnWiley & Sons, Ltd.

Bibliographical metadata

Original languageEnglish
Pages (from-to)360-388
Number of pages28
JournalOxford Bulletin of Economics and Statistics
Volume76
Issue number3
DOIs
Publication statusPublished - 2014