Title: Modelling persistence in the conditional mean of inflation using an ARFIMA process with GARCH and GJR-GARCH innovations
Authors: Luis Alberiko Gil-Alana - University of Navarra (Spain)
Alexander Boateng - University of Limpopo (South Africa) [presenting]
Abstract: The aim is to contribute to the debate on inflation persistence by extending an ARFIMA process with GARCH and GJR-GARCH models to describe the time-dependent heteroscedasticity and persistence in the conditional mean of Consumer Price Index (CPI) inflation series of Ghana and South Africa under three distributional assumptions (i.e., Normal, Student-t and Generalised Error Distributions). ARFIMA(3,0.26,1)-GJR-GARCH(1,1) under Generalised Error Distribution and ARFIMA(3,50,2)-GJR-GARCH(1,1) under Student-t Distribution respectively, provided the best fit for modelling the time-dependent heteroscedasticity and persistence in the conditional mean of CPI inflation rate of Ghana and South Africa. Results from the study provided evidence of persistence, mean reverting though, and asymmetric effect of economic shocks on the conditional mean of CPI inflation rate of the two countries. These results would, therefore, be useful to both countries in making good portfolio decisions, accessing the efficacy of a monetary policy or programme meant to control inflation persistence and also serving as a tool for detecting volatility and its impact, in the Ghanaian and South African inflation rate and their economies at large.