Time-varying Inflation Dynamics and Monetary Policy Credibility: A Bivariate Approach with Stochastic Uncertainty

摘要

This paper addresses the properties of inflation dynamics and proposes a univariate ARFIMA-EGARCH-in-mean model to accommodate inflation rates, expectations, volatilities and persistence. As the changes within inflation dynamics may be caused by the lack of monetary policy credibility, a generalized approach is developed to be concerned with the measurement of credibility. Through a bivariate model, all possibilities for relevant variables and effects can be capsuled in one framework simultaneously. And thus empirical results should deliver useful implications should for the conduct of central banks' monetary policy.