Testing for Persistence Change in Fractionally Integrated Models: An Application to Inflation

Economics

Speaker:Dr Paulo Rodrigues, Bank of Portugal and Universidade do Algarve
Date: Friday 15 October 2010
Time: 16:15
Location: STC\D

Further details

In this paper we propose an approach to detect changes in persistence in fractionally integrated models based on recursive forward and backward estimation of the Breitung and Hassler (2002) test, in a similar way as the approach suggested by Leybourne, Kim, Smith and Newbold (2003) and Leybourne and Taylor (2003) which is based on the ADF and sea- sonal unit root tests, respectively, for the conventional intenger value context. Asymptotic results are derived and the performance of the new procedures evaluated in a Monte Carlo exercise. The finite sample size and power performance of the procedures are very encouraging and compare very favourably to available tests, such as those recently proposed by Hassler and Sheithauer (2009) and Sibbertsen and Kruse (2007). We also apply the test statistics introduced to several world inflation rates and found evidence of a change in persistence in most series.