On the detection of structural breaks : the case of the Covid shock

dc.contributor.authorHall, Stephen George
dc.contributor.authorTavlas, George S.
dc.contributor.authorTrapani, Lorenzo
dc.contributor.authorWang, Yongli
dc.date.accessioned2025-01-30T09:59:21Z
dc.date.issued2025-04
dc.descriptionDATA AVAILABILITY STATEMENT : The data that support the findings of this study are available from the corresponding author upon reasonable request.en_US
dc.description.abstractBoth the Federal Reserve (Fed) and the European Central Bank (ECB) have been criticized for not having perceived that the outbreak of Covid at the beginning of 2020 would lead to a structural change in inflation in the early 2020s. Both central banks viewed the initial inflation surge in 2021 as temporary and delayed monetary tightening until 2022. We argue that the existing literature on structural breaks could not have been useful to policymakers because it identifies the breaks in an arbitrary way. The tests used to identify breaks do not incorporate prior knowledge that a break may have occurred so that the tests have very little power to detect a break that occurs at the end of the sample. We show that, in the event of a major shock, such as Covid, using knowledge that a break may have occurred and testing for a break in a recursive way as new data become available could have alerted policymakers to the break in inflation. We conduct Monte Carlo simulations suggesting that our method would have identified that a break had occurred in inflation by the end of 2020, well before policymakers had perceived the break.en_US
dc.description.departmentEconomicsen_US
dc.description.embargo2026-12-09
dc.description.librarianhj2024en_US
dc.description.sdgSDG-08:Decent work and economic growthen_US
dc.description.urihttp://wileyonlinelibrary.com/journal/foren_US
dc.identifier.citationHall, S.G., Tavlas, G.S., Trapani, L. et al. 2025, 'On the detection of structural breaks : the case of the Covid shock', Journal of Forecasting, vol. 44, no. 3, pp. 1042-1070, doi : 10.1002/for.3238.en_US
dc.identifier.issn0277-6693 (print)
dc.identifier.issn1099-131X (online)
dc.identifier.other10.1002/for.3238
dc.identifier.urihttp://hdl.handle.net/2263/100397
dc.language.isoenen_US
dc.publisherWileyen_US
dc.rights© 2024 John Wiley & Sons, Ltd. This is the pre-peer reviewed version of the following article : 'On the detection of structural breaks : the case of the Covid shock', Journal of Forecasting, vol. 44, no. 3, pp. 1042-1070, 2025, doi : 10.1002/for.3238. The definite version is available at : http://wileyonlinelibrary.com/journal/for.en_US
dc.subjectEuro area inflationen_US
dc.subjectUnited States inflationen_US
dc.subjectStructural breaksen_US
dc.subjectSDG-08: Decent work and economic growthen_US
dc.subjectCOVID-19 pandemicen_US
dc.subjectCoronavirus disease 2019 (COVID-19)en_US
dc.titleOn the detection of structural breaks : the case of the Covid shocken_US
dc.typePostprint Articleen_US

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