Identifying Changes in Mean, Seasonality, Persistence and Volatility for G7 and Euro Area Inflation

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  • Erdenebat Bataa
    National University of Mongolia
  • Denise R Osborn
    University of Manchester
  • Marianne Sensier
    University of Manchester
  • Dick Van Dijk
    Erasmus University Rotterdam
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.
Original languageEnglish
Pages (from-to)360-388
JournalOxford Bulletin of Economics and Statistics
Volume76
Issue number3
DOIs
Publication statusPublished - Jun 2014
Externally publishedYes
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