US inflation appears to undergo shifts in its mean level and variability. We evaluate the performance of three useful models for capturing such shifts. The models studied are the Markov switching models, state space models with heavy-tailed errors, and state space models with compound error...

We investigate whether fluctuations in U.S. inflation rates are better described by infrequently occurring large shocks or by frequently occurring small shocks. We estimate a model that encompasses the two hypotheses within the framework of non-Gaussian state-space models. Our results indicate...

Most economic time series indicate non-normality in the form of either occasional big shocks or marked changes in the level of the series. In this paper, a univariate state-space model with infinite variance symmetric stable shocks is used to model the U.S. inflation rate via the...