New model predicts economic slowdowns based on inflation volatility switches.
The article discusses how to estimate US inflation volatility by using different models. They found that a model with switches between stationary processes captures changes in volatility over the past forty years. This model provides more information on the level and persistence of volatility, showing switches during economic slowdowns or changes in the Federal Reserve Chair. They also found that a spike in volatility in the late 2000s was temporary and above its usual level during a period of higher persistence.