Advanced

Is inflation mean-reverting?

Lavesson, Niclas LU (2011) NEKM01 20111
Department of Economics
Abstract
This paper investigates whether inflation series are mean-reverting. Traditional unit root tests (ADF and KPSS tests) are conducted in the paper. These tests indicate that inflation contains a unit root. It is however well-known that traditional unit root tests have difficulties to distinguish between a unit root process and a fractionally integrated process. Hence, in this thesis, fractional integration estimators are used in order to investigate if inflation is better modeled as a fractionally integrated process.

The main finding of this paper is that inflation with a high certainty is fractionally integrated and mean-reverting. Another important finding is that the persistence in inflation series likely was lower during the... (More)
This paper investigates whether inflation series are mean-reverting. Traditional unit root tests (ADF and KPSS tests) are conducted in the paper. These tests indicate that inflation contains a unit root. It is however well-known that traditional unit root tests have difficulties to distinguish between a unit root process and a fractionally integrated process. Hence, in this thesis, fractional integration estimators are used in order to investigate if inflation is better modeled as a fractionally integrated process.

The main finding of this paper is that inflation with a high certainty is fractionally integrated and mean-reverting. Another important finding is that the persistence in inflation series likely was lower during the Bretton-Woods era relative the years after the system collapsed. Moreover, the findings in the paper do not crucially depend on which fractional integration estimator that are used. (Less)
Please use this url to cite or link to this publication:
author
Lavesson, Niclas LU
supervisor
organization
course
NEKM01 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
inflation, fractional integration, mean-reversion, unit root
language
English
id
2153279
date added to LUP
2011-09-27 09:00:36
date last changed
2011-09-27 09:00:36
@misc{2153279,
  abstract     = {This paper investigates whether inflation series are mean-reverting. Traditional unit root tests (ADF and KPSS tests) are conducted in the paper. These tests indicate that inflation contains a unit root. It is however well-known that traditional unit root tests have difficulties to distinguish between a unit root process and a fractionally integrated process. Hence, in this thesis, fractional integration estimators are used in order to investigate if inflation is better modeled as a fractionally integrated process.

The main finding of this paper is that inflation with a high certainty is fractionally integrated and mean-reverting. Another important finding is that the persistence in inflation series likely was lower during the Bretton-Woods era relative the years after the system collapsed. Moreover, the findings in the paper do not crucially depend on which fractional integration estimator that are used.},
  author       = {Lavesson, Niclas},
  keyword      = {inflation,fractional integration,mean-reversion,unit root},
  language     = {eng},
  note         = {Student Paper},
  title        = {Is inflation mean-reverting?},
  year         = {2011},
}