DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?

DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?

This paper test the null hypothesis of linearity against a specific form of nonlinearity in the Data Generating Process (DGP) of the unemployment rate and the difference between the inflation rate (measured as the twelve months variation of CPI and CPIX1) and the inflation target, using twenty years...

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Autor principal: MONTERO,ROQUE
Lenguaje:English
Publicado: ILADES. Universidad Alberto Hurtado. 2012
Materias:
Inflation
unemployment
SETAR models
regime switching
nonlinear models
Acceso en línea:http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-88702012000100001
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spelling oai:scielo:S0718-887020120001000012013-07-19DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?MONTERO,ROQUE Inflation unemployment SETAR models regime switching nonlinear models This paper test the null hypothesis of linearity against a specific form of nonlinearity in the Data Generating Process (DGP) of the unemployment rate and the difference between the inflation rate (measured as the twelve months variation of CPI and CPIX1) and the inflation target, using twenty years of data (1990-2009) and time series models. The rejection of the null implies that the series has more than one regime or state. The regime switching process could explain the recent boom/bust of inflation observed during these years, or the unemployment rate after the Asian crisis, for instance. The main results are: it is not possible to reject linearity in the deviation of inflation from the inflation target. During the last twenty years, inflation has converged smoothly to the target without any regime switching. The speed of convergence to the target has been constant over the years and inflationary shocks have been dissolved with the usual degree of persistency. Finally, strong evidence is found against linearity in the unemployment rate. On the contrary, it fluctuates with high probability between states or regimes through time.info:eu-repo/semantics/openAccessILADES. Universidad Alberto Hurtado.Revista de análisis económico v.27 n.1 20122012-04-01text/htmlhttp://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-88702012000100001en10.4067/S0718-88702012000100001
institution Scielo Chile
collection Scielo Chile
language English
topic Inflation
unemployment
SETAR models
regime switching
nonlinear models
spellingShingle Inflation
unemployment
SETAR models
regime switching
nonlinear models
MONTERO,ROQUE
DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?
description This paper test the null hypothesis of linearity against a specific form of nonlinearity in the Data Generating Process (DGP) of the unemployment rate and the difference between the inflation rate (measured as the twelve months variation of CPI and CPIX1) and the inflation target, using twenty years of data (1990-2009) and time series models. The rejection of the null implies that the series has more than one regime or state. The regime switching process could explain the recent boom/bust of inflation observed during these years, or the unemployment rate after the Asian crisis, for instance. The main results are: it is not possible to reject linearity in the deviation of inflation from the inflation target. During the last twenty years, inflation has converged smoothly to the target without any regime switching. The speed of convergence to the target has been constant over the years and inflationary shocks have been dissolved with the usual degree of persistency. Finally, strong evidence is found against linearity in the unemployment rate. On the contrary, it fluctuates with high probability between states or regimes through time.
author MONTERO,ROQUE
author_facet MONTERO,ROQUE
author_sort MONTERO,ROQUE
title DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?
title_short DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?
title_full DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?
title_fullStr DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?
title_full_unstemmed DOES LINEARITY IN THE DYNAMICS OF INFLATION GAP AND UNEMPLOYMENT RATE MATTER?
title_sort does linearity in the dynamics of inflation gap and unemployment rate matter?
publisher ILADES. Universidad Alberto Hurtado.
publishDate 2012
url http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-88702012000100001
work_keys_str_mv AT monteroroque doeslinearityinthedynamicsofinflationgapandunemploymentratematter
_version_ 1714206207991873536

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