Regime shifts and inflation uncertainty in Peru

Paúl Castillo, Alberto Humala, Vicente Tuesta

Research output: Contribution to journalArticle (Contribution to Journal)peer-review

5 Scopus citations


The link between inflation and inflation uncertainty is evaluated using Peruvian data, in a context of changing monetary policies because of regime shifts. A Markov regime-switching heteroskedasticity model that includes unobserved components is used. The model shows how periods of high (low) inflation accompany periods of high (low) short- and long-run uncertainty in inflation. The results of the model also illustrate how, during the recent period of price stability in Peru, both permanent and transitory shocks in inflation show a decrease in volatility. Finally, a time-varying measure of inflation uncertainty is derived from the estimates, giving additional evidence on the positive link between the level of inflation and its uncertainty.

Translated title of the contributionCambios de régimen e incertidumbre inflacionaria en Perú
Original languageEnglish
Pages (from-to)71-87
Number of pages17
JournalJournal of Applied Economics
Issue number1
StatePublished - May 2012
Externally publishedYes


  • Inflation dynamics
  • Markov-switching models
  • Monetary policy
  • Stochastic trends
  • Unobserved components models


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