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Asymmetric Quantile Persistence and Predictability: the Case of US Inflation
Author(s) -
Manzan Sebastiano,
Zerom Dawit
Publication year - 2015
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12065
Subject(s) - predictability , economics , econometrics , quantile , volatility (finance) , persistence (discontinuity) , inflation (cosmology) , quantile regression , core inflation , monetary policy , inflation targeting , mathematics , keynesian economics , statistics , physics , geotechnical engineering , theoretical physics , engineering
This article investigates the evidence of time‐variation and asymmetry in the persistence of US inflation. We compare the out‐of‐sample performance of different forecasting models and find that quantile forecasts from an Auto‐Regressive (AR) model with level‐dependent volatility are at least as accurate as the forecasts of the Quantile Auto‐Regressive model, in particular for the core inflation measures. Our results indicate that the persistence of core inflation has been relatively constant and high, but it declined for the headline inflation measures. We also find that the asymmetric persistence of inflation shocks can be mostly attributed to the positive relation between inflation level and its volatility.