Some Evidence of Smooth Transition Nonlinearity in Colombian Inflation
The series Working Papers on Economics is published by the Office for Economic Studies at the Banco de la República (Central Bank of Colombia). The works published are provisional, and their authors are fully responsible for the opinions expressed in them, as well as for possible mistakes. The opinions expressed herein are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.
Evidence of smooth transition autoregressive (STAR) representations is found in two, out of three, time series of different measures of annual inflation in Colombia during this decade for monthly data. The STAR-type nonlinearities are asymmetric for inflation computed as the variation of CPI while for (a measure of ) core inflation are symmetric. Thus, LSTAR and ESTAR models were, respectively, estimated. No evidence of nonlinearity is found for traded goods inflation. Given the local dynamic properties of the estimated LSTAR model, only positive shocks to prices could shift negative accelerating inflation rate from the upper to the lower regime. By the same token, only stochastic shocks can move the core accelerating inflation rate from the outer regime to the middle one but the explosive nature of this regime will impulse the accelerating inflation rate to the outer one.
