Stabilization, Persistence, and Inflationary Convergence: A Comparative Analysis

The purpose of this paper is to analyze empirically the importance of inflationary persistence in a group of sixteen advanced and developing countries. We do this by studying, in great detail, the time series properties of inflation using both univariate as well as multivariate techniques. We show that inflationary inertia greatly varies both across countries and across different periods of time within a country. Moreover, there seems to exists a clear connection between our estimates of inertia and the levels of inflation in the countries in our sample. Nominal exchange rate anchors seem to reduce inflation inertia but only until time goes by and the program fails to lower inflation to international levels.