Analysing South Africa's Inflation Persistence Using an ARFIMA Model with Markov-Switching Fractional Differencing Parameter

We test the inertial properties of South African inflation in a Markov-Switching autoregressive fractionally integrated moving average model. This allows us to test for long memory and study the persistence of inflation in multiple regimes. We show that inflation is more volatile and persistent during high inflation episodes relative to low inflation episodes. We estimate that it takes approximately 70 months for 50 percent of the shocks to dissipate in a high inflation regime compared to 10 months in a low inflation regime.