Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy

37 Pages Posted: 19 May 2009

See all articles by Jan Babecký

Jan Babecký

Czech National Bank (CNB)

Fabrizio Coricelli

University of Siena - Department of Political and International Sciences ; Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR)

Roman Horvath

Charles University in Prague; IOS Regensburg; Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Date Written: April 2009

Abstract

The paper provides an empirical analysis of inflation persistence in one of inflation targeting countries, the Czech Republic, using 412 detailed product-level consumer price indexes underlying the consumer basket over the period from 1994 to 2005. Subject to various sensitivity tests, our results suggest that raw goods and non-durables, followed by services, display smaller inflation persistence than durables and processed goods. Inflation seems to be somewhat less persistent after the adoption of inflation targeting in 1998. There is also evidence for aggregation bias, that is, aggregate inflation is found to be more persistent than the underlying detailed components. Price dispersion, as a proxy for the degree of competition, is found to be negatively related to inflation persistence, suggesting that competition is not conducive to reducing persistence.

Keywords: inflation dynamics, inflation targeting, persistence

JEL Classification: D40, E31

Suggested Citation

Babecky, Jan and Coricelli, Fabrizio and Horvath, Roman, Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy (April 2009). CEPR Discussion Paper No. DP7268, Available at SSRN: https://ssrn.com/abstract=1405065

Jan Babecky

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Fabrizio Coricelli (Contact Author)

University of Siena - Department of Political and International Sciences ( email )

Via Mattioli, 10
Siena, 53100
Italy

Paris School of Economics (PSE)

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Roman Horvath

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

IOS Regensburg

Landshuter Str. 4
Regensburg, 93047
Germany

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG)

250, rue Albert Einstein
Valbonne, 06560
France

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Lyon
France

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