Comparative Analysis of the Autoregressive Equation that Describe the Generating Information Process of Inflation in Regards of a Methodological Change of Puerto Rico’s Consumer Price Index (CPI)

• Main Author: Carlos A. Rodriguez
• Format: Article
• Language: English
• Published: Athens Institute for Education and Research 2016-07-01
• Series: Athens Journal of Business & Economics
• Subjects: cpi methodology; inflation rate; macroeconomic policy; time series analysis
• Online Access: https://www.athensjournals.gr/business/2016-2-3-2-Rodriguez.pdf

This paper analyzes the variation in the autoregressive (AR) structure of inflation due to a methodological change in the consumer price index (CPI) of Puerto Rico. The literature suggests that the inflation had been significantly affected by the demand and supply forces, the monetary policy of the USA and by the different transformations of the Puerto Rican economy. This means that any change in its dynamics, due to methodological aspects, should be analyzed deeply. If not there will be serious implications for decision making and policy, because the study of this variable can be based on wrong premises and commit specification errors. A time series methodological analysis was performed using statistical analysis, lag length criteria, correlogram, unit root and structural tests. The purpose of this methodology is to develop the generating information process that provides the dynamic structure of the series of the inflation with the 1984 and 2006 bases. According to the results the series of inflation, with the new methodology, shows a more stable behavior than the old one, but it is close to have a unit root process.