A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach*

This paper introduces a simple and easy to implement procedure test for changes in persistence. The time-varying parameter that characterizes persistence under the alternative hypothesis is approximated by parsimonious cosine function. new minimum of t-statistic computed from regression considers set reasonable values frequency term used evaluate properties asymptotic distributions tests are derived critical provided. An in-depth Monte Carlo analysis shows has important power gains when compared local Generalized Least Squares (GLS) de-trended Dickey–Fuller type various data generating processes with changes. Moreover, an empirical application OECD countries’ inflation most series analysed was high first half sample subsequently decreased. These results conform modern macroeconomic theories point dynamics early 1980s also recent evidence against I(1)−I(0) dichotomy.