Inflation Control and Government Intervention: Impact of Government Intervention on Inflation Control: Towards an Alternative Theory

This is about to detect the effects of government interventions on inflation control. This study applies the method of long memory instead of traditional method. The data generating process considers the case where there are shock-plans i.e. inliers such as government interventions that are short-lived but important in magnitude. The essence of the overall results of the simulation implies that the level to which inflation falls after the application of a government programs has no impact on the estimates of the fractional parameter and on the persistence of the inflation process. That means any abrupt government interventions have temporary rather than permanent effects on lowering the inflation rates and the series remain stationary. Thus, the stochastic behavior of the inflation rate is indeed unstable. Therefore, any government intervention is merely a temporary measure to control the high inflation, which implies the facts of pursuing alternative measures of monetary policy. This paper recommends, however, pursuing the Time-Consistency Economic policy, which provides an explanation in order to combat inflation and to sustain the result for the longer period of time.