Persistence in international inflation rates

Abstract

We test for fractional dynamics in inflation rates based on the consumer price index (CPI) for 27 countries and inflation rates based on the wholesale price index (WPI) for 22 countries, The fractional differencing parameter is estimated using semiparametric and approximate maximum likelihood methods. Significant evidence of fractional dynamics with long-memory features is found in both CPI- and WPI-based inflation rates for industrial as well as developing countries. Implications of the findings are considered, and sources of long memory are hypothesized.