Kiel Working Papers, Kiel Institute for World Economics
No 1666:
A Conditionally Heteroskedastic Global Inflation Model
Leonardo Morales-Arias and Guilherme V. Moura
Abstract: This article proposes a multivariate model of inflation
with conditionally heteroskedastic common and country-specific components.
The model is estimated in one-step via Quasi-Maximum Likelihood for the G7
countries for the period Q1-1960 to Q4-2009. It is found that various model
specifications considered fit well the first and second order dynamics of
inflation in the G7. The estimated volatility of the common inflation
component captures the international effects of the ‘Great Moderation’ and
of the ‘Great Recession’. The model also shows promising capabilities for
forecasting inflation in several countries
Keywords: Global inflation, conditional heteroskedasticity, inflation forecasting; (follow links to similar papers)
JEL-Codes: E31,; E37,; F41; (follow links to similar papers)
38 pages, November 2010
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