Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy

CERGE-EI Working Paper Series No. 353

Posted: 14 Oct 2009

See all articles by Jan Babetski

Jan Babetski

Center For Econ Research & Grad Education, and Econ Institute, Prague (CERGE-EI); National Center for Scientific Research (CNRS) - Research Center On Transition Economics (ROSES)

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: June 1, 2008

Abstract

The paper provides an empirical analysis of inflation persistence in an inflation targeting country, the Czech Republic, using 412 detailed product-level consumer price indexes underlying the consumer basket over the period from 1994:M1 to 2005:M12. 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, persistence, inflation targeting

JEL Classification: D40, E31

Suggested Citation

Babeckij (Babetski), Jan (Ian) and Coricelli, Fabrizio and Horvath, Roman, Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy (June 1, 2008). CERGE-EI Working Paper Series No. 353, Available at SSRN: https://ssrn.com/abstract=1488840

Jan (Ian) Babeckij (Babetski) (Contact Author)

Center For Econ Research & Grad Education, and Econ Institute, Prague (CERGE-EI) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

National Center for Scientific Research (CNRS) - Research Center On Transition Economics (ROSES)

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France
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+33 1 4407 8191 (Fax)

Fabrizio Coricelli

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

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Siena, 53100
Italy

Paris School of Economics (PSE)

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Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

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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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