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

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...

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Bibliographic Details
Published in:Oxford bulletin of economics and statistics 2014-06, Vol.76 (3), p.360-388
Main Authors: Bataa, Erdenebat, Osborn, Denise R., Sensier, Marianne, Dijk, Dick van
Format: Article
Language:English
Subjects:
Accounting
C22
E31
E52
Econometrics
Eurozone
G-7
Inflation
Iterative methods
Manycountries
Monte Carlo simulation
Seasonal variations
Seasonality
Studies
Volatility
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Summary: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.
ISSN:0305-9049
1468-0084
DOI:10.1111/obes.12021