Does Final Energy Demand in Portugal Exhibit Long Memory? A Fractional Integration Analysis

In this paper, we measure the degree of fractional integration in final energy demand in Portugal using an ARFIMA model with and without adjustments for seasonality. We consider aggregate energy demand as well as final demand for petroleum, electricity, coal, and natural gas. Our findings suggest the presence of long memory in all of the components of energy demand. All fractional-difference parameters are positive and lower than 0.5 indicating that the series are stationary, although with mean reversion patterns slower than in the typical short-run processes. These results have important implications for the design of energy policies. As a result of the long-memory in final energy demand, the effects of temporary policy shocks will tend to disappear slowly. This means that even transitory shocks have long lasting effects. Given the temporary nature of these effects, however, permanent effects on final energy demand require permanent policies. This is unlike what would be suggested by the more standard, but much more limited, unit root approach, which would incorrectly indicate that even transitory policies would have permanent effects

Measuring persistence in inflation: evidence for Angola

The purpose of this paper is to examine the degree of persistence in five inflation indicators for Angola, and to identify the implications for decision-making. Understanding inflation persistence in Angola is crucial because the National Bank of Angola is preparing to change its monetary policy focus to a more inflation-targeting regime. Our results suggest that when structural breaks are accounted for, all five inflation indicators are stationary, so that a shock will give temporary effects. Secondly, our findings suggest that persistence is not too high. Moreover, the degree of persistence is similar among the five inflation indicators and throughout the sample period. Finally, our results also show that extracting the most volatile components of the headline inflation indicator does not generate a new inflation indicator that is less volatile and more persistent than the original. These results have important implications for the design, implementation and effectiveness of monetary policy in Angola, especially when following an inflation-targeting regime. First, a not too high degree of persistence means monetary policy aiming for price stability must be implemented with a permanent policy stance. Secondly, a low degree of persistence also means that inflation can be stabilized in a short period of time following a shock. Lastly, the results are also relevant for prediction and modeling purposes.

Measuring persistence in nominal exchange rate: Implications for Angola’s entrepreneurship and business development

The purpose of this paper is to measure the degree of persistence in the Kwanza to US Dollar exchange rate. First, our results indicate that nominal exchange rates both in levels and in first differences are I(0), thus implying that the relative purchasing power parity hypothesis for Angola is not rejected. Secondly, we find a significant degree of persistence in both the formal and informal nominal exchange rates. Thirdly, the degree of persistence in the official market is significantly lower than in the formal market, while In first differences, persistence in the official exchange rate is substantially higher than in the informal exchange rate. Lastly, we could not find strong evidence that persistence has changed in levels throughout the sample period. By contrast, there is significant evidence that persistence in first differences has consistently increased after September 2003. These results have important policy implications as the National Bank of Angola is preparing to change its monetary and exchange-rate policy focus to a more inflation-targeting regime and to a more a flexible (or low-managed) exchange-rate regime.

Do Global CO2 Emissions from Fossil-Fuel Consumption Exhibit Long Memory? A Fractional Integration Analysis

In this article we use an autoregressive fractionally integrated moving average approach to measure the degree of fractional integration of aggregate world CO2 emissions and its five components – coal, oil, gas, cement, and gas flaring. We find that all variables are stationary and mean reverting, but exhibit long-term memory. Our results suggest that both coal and oil combustion emissions have the weakest degree of long-range dependence, while emissions from gas and gas flaring have the strongest. With evidence of long memory, we conclude that transitory policy shocks are likely to have long-lasting effects, but not permanent effects. Accordingly, permanent effects on CO2 emissions require a more permanent policy stance. In this context, if one were to rely only on testing for stationarity and non-stationarity, one would likely conclude in favour of non-stationarity, and therefore that even transitory policy shocks