Impact of Government Intervention on Inflation Control*

Abstract This paper detects the effects of government intervention to control inflation. The long memory fractional parameter was estimated using simulation technique in the presence of additive inliers, which serve as a proxy of government intervention. The data generating process considers the case where there are shock plans, i.e. inliers that are short-lived but important in magnitude. The results show that the level to which inflation falls after the intervention has no impact on the estimate of the fractional parameter and on the persistence of the inflation process. That means any abrupt intervention would have only temporary effect on lowering the inflation rates and the series remain stationary. This implies the need for alternative measures of monetary policy. This paper recommends pursuing the time-consistency economic policy, which provides an explanatio