On the persistence of UK inflation: A long-range dependence approach
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The ESRI organises a public seminar series, inviting researchers from both the ESRI and other institutions to present new research on a variety of public policy issues. The seminar series provides access to specialised knowledge and new research methodologies, with the objective of promoting research excellence and facilitating productive dialogue across the policy and research fields.
Guest Speaker: Guglielmo Maria Caporale, Professor of Economics and Finance, Brunel University London
This research examines the degree of persistence in UK inflation by applying long-memory methods to historical data that span the period from 1660 to 2016. Specifically, we use both parametric and non-parametric fractional integration techniques, that are more general than those based on the classical I(0) vs. I(1) dichotomy. Further, we carry out break tests to detect any shifts in the degree of persistence, and also run rolling-window and recursive regressions to investigate its evolution over time. On the whole, the evidence suggests that the degree of persistence of UK inflation has been relatively stable following the Bretton Woods period, despite the adoption of different monetary regimes. The estimation of an unobserved-components stochastic volatility model sheds further light on the issues of interest by showing that post-Bretton Woods changes in UK inflation are attributable to a fall in the volatility of permanent shocks.
Guglielmo Maria Caporale is Professor of Economics and Finance and Director of the Centre for Empirical Finance at Brunel University, London. His research interests include Econometrics, Macroeconomics, Monetary and Financial Economics, International Finance. He is a member of various professional bodies and of the Money, Macro and Finance Research Group (MMFRG) Committee.