Measuring Persistence in Inflation: Evidence For angola

• Author: Júlio António Delgado,Leonardo Dia Massala,José Manuel Belbute
• Date: 01 December 2016
• Published date: 01 December 2016
• DOI: http://doi.org/10.1111/saje.12118

MEASURING PERSISTENCE IN INFLATION:

EVIDENCE FOR ANGOLA

JOSE

´MANUEL BELBUTE*

†

,LEONARDO DIA MASSALA

‡

AND JU

´LIO ANTO

´NIO DELGADO

§

Abstract

The purpose of this paper is to examine the degree of persistence in five inflation indicators for

Angola, and to identify the implications for decision making. Our results suggest that when

structural breaks are accounted for, all five inflation indicators are stationary. Second, our findings

suggest that persistence is not too high. Moreover, the degree of persistence is similar among the

five inflation indicators and throughout the sample period. Finally, our results also show that

extracting the most volatile components of the headline inflation indicator does not generate a

new inflation indicator that is less volatile and more persistent than the original. These results

have important policy implications as the National Bank of Angola is preparing to change its

monetary policy focus to a more inflation-targeting regime.

JEL Classification: C14, C22, E31, E52

Keywords: Inflation, persistence, Angola

1. INTRODUCTION AND MOTIVATION

The purpose of this paper is to measure the degree of persistence in the headline, food,

energy, underlying and 10% trimmed core inflation indicators for Angola and to identify

the implications for decision making for both the public and private sectors.

In the long run, inflation is a monetary phenomenon, thereby entirely determined by

monetary policy. However, in the short term, inflation might temporarily move away

from the central bank’s inflation target as a result of economic shocks, such us changes in

economic activity or in production costs. Therefore, understanding persistence in infla-

tion is a central issue for economic policy makers because it may have crucial implica-

tions for the design, implementation and effectiveness of monetary policy, especially

when following an inflation-targeting monetary regime (see, among others, Levin and

Piger, 2003; Gadzinski and Orlandi, 2004; Marques, 2004; Pivetta and Reis, 2007;

Fuhrer, 2009; Cogley et al., 2010; Dias and Marquesm 2010). In particular, the appro-

priate response to a random shock depends on the degree to which its effects on inflation

will persist. If inflation is highly (weakly) persistent, then bringing inflation back to its

* Corresponding author: Associate Professor, Department of Economics, University of 

Evora,

Portugal. E-mail: jbelbute@uevora.pt

†

Center for Advanced Studies in Management and Economics - CEFAGE-UE, Portugal.

‡

Department of Economic Studies, Banco Nacional de Angola.

§

INOVE Research.

Contract grant sponsor: Fundac¸~ao para a Ci^encia e a Tecnologia and FEDER/COMPETE;

contract grant number: UID/ECO/04007/2013.

The authors are grateful to the SAJE’s Managing Editor and to two anonymous referee for

their helpful comments and insights.

V

C2015 Economic Society of South Africa. doi: 10.1111/saje.12118

594

South African Journal of Economics Vol. 84:4 December 2016

South African Journal

of Economics