Analysis of Inflation in Bolivia. A Markov- Switching Approach with Three States
DOI:
https://doi.org/10.35319/lajed.202033421Keywords:
Forecast and Simulation, Inflation Regimes, Time SeriesAbstract
This document analyzes the evolution of the inflation rate in Bolivia with three states, in the period 1987 to 2017, with quarterly frequency data. Markov Models are used for this purpose: a Switching Markov Regression of order 3 [MS_ARMA (3, 2, 1)], with autoregressive parameters of order 1 and 2 and the inclusion of a trend dummy in each regime. The results show that in the period under study, the spells of low and moderate inflation predominate throughout the sample. Another important finding is that the estimated persistence of interannual inflation rate in Bolivia is of order 0.1174, which implies a low persistence in inflation. This means that the shocks in it dissipate quickly, thus confirming the price stability that has been generated since the mid-1990s.
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