Exchange Rate Regimes and Shifts in Inflation Persistence: Does Nothing Else Matter?

This paper reexamines the findings of George S. Alogoskoufis and Ron Smith (1991), who argue that sharp increases in inflation persistence can be attributed to changes in the exchange rate regime. Using long time series data from the United Kingdom, the United States, Canada, and Sweden, the authors suggest that these authors' emphasis on a post-1967 shift in inflation persistence is misplaced and that there are other equally good candidates to account for changes in inflation persistence, such as wars, oil price shocks, and central bank reforms. This conclusion is supported by recently developed tests that allow for multiple structural shifts at unknown dates.