INVESTIGATING OF PERSISTENCE IN CORE, FOOD AND ENERGY INFLATIONS: AN EVIDENCE FROM TIME-VARYING APPROACH
Abstract
This study examines how inflation persistence evolves over time in Euro Area, the UK, the US, and OECD countries over the period of 1999:07-2021:09. We consider the persistence of core, energy, and food inflation, as well total inflation. Using an ARMA(1,1) model with time-varying autoregressive parameters based on the Kalman filter (TV-AR), we find that inflation persistence increases significantly during crisis periods and total persistence peaks during the COVID-19 pandemic. However, the persistence of energy inflation decreases due to the economic slowdown during the COVID-19 pandemic. These results highlight how inflation persistence is related to monetary policy objectives and conduct. The findings indicate that the various measures taken by the governments such as containment and closure policies, and travel restrictions to prevent the spread of COVID-19 cause to increase in total and food inflation persistences. Energy inflation persistence declines due to a slowdown in production during COVID-19.