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Mean reversion of inflation rates in 19 OECD countries: Evidence from panel Lm unit root tests with structural breaks

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Author Info
Chien-Chiang Lee () (Department of Applied Economics, National Chung Hsing University)
Chun-Ping Chang () (Institute for Interdisciplinary Studies, National Sun Yat-sen University)
Abstract

The paper applies the recently developed panel LM unit root tests with heterogeneous structural breaks by Im et al., [The Oxford Bulletin of Economics and Statistics, 2005] in order to re-examine the validity of mean reversion in the inflation rates of 19 OECD countries for the time period 1960-2004. Our empirical findings are favorable to the stationarity of the inflation ratesand therefore point to the absence of hyperinflation in the majority of the countries. The results indicate that most shocks to inflation rates are temporary and soon converge when we control for breaks, with the inflation rates showing mean reversion. Overall, some policy implications are obtained in this paper.

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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 3 (2007)
Issue (Month): 23 ()
Pages: 1-15
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Handle: RePEc:ebl:ecbull:v:3:y:2007:i:23:p:1-15

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Related research
Keywords: Panel LM unit root test; Structural breaks; Inflation; OECD;

Find related papers by JEL classification:
C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

References listed on IDEAS
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  1. Kyung-So Im & Junsoo Lee & Margie Tieslau, 2005. "Panel LM Unit-root Tests with Level Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 393-419, 06. [Downloadable!] (restricted)
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  4. Sandrine Corvoisier & Benoît Mojon, 2005. "Breaks in the mean of inflation - how they happen and what to do with them," Working Paper Series 451, European Central Bank. [Downloadable!]
  5. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, 07. [Downloadable!] (restricted)
  6. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May. [Downloadable!] (restricted)
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  15. Gadea, Maria Dolores & Sabate, Marcela & Serrano, Jose Maria, 2004. "Structural breaks and their trace in the memory: Inflation rate series in the long-run," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(2), pages 117-134, April. [Downloadable!] (restricted)
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  20. Lee, Hsiu-Yun & Wu, Jyh-Lin, 2001. "Mean Reversion of Inflation Rates: Evidence from 13 OECD Countries," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 477-487, July. [Downloadable!] (restricted)
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  24. Jewell, Todd & Lee, Junsoo & Tieslau, Margie & Strazicich, Mark C., 2003. "Stationarity of health expenditures and GDP: evidence from panel unit root tests with heterogeneous structural breaks," Journal of Health Economics, Elsevier, vol. 22(2), pages 313-323, March. [Downloadable!] (restricted)
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