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Spurious Persistence and Unit Roots due to Seasonal Differencing: The Case of Inflation Rates

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  • Uwe Hassler

    ()
    (Universitaet Frankfurt)

  • Matei Demetrescu

    ()
    (Universitaet Frankfurt)

Abstract

Studying annual growth rates (seasonal differences) in case of seasonal data produces much more persistence, autocorrelation and stronger evidence in favour of a unit root than analyzing seasonal growth rates (ordinary differences). First, this statement is quantified theoretically. Second, it is supported experimentally which simulations, and, finally, it is empirically illustrated with quarterly GDP deflators from 7 European economies.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 225 (2005)
Issue (Month): 4 (July)
Pages: 413-426

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Handle: RePEc:jns:jbstat:v:225:y:2005:i:4:p:413-426

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Related research

Keywords: Annual growth rates; nonstationarity; Dickey-Fuller test; loss of power;

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References

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  1. Guglielmo Caporale & Nikitas Pittis, 1993. "Common stochastic trends and inflation convergence in the EMS," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 129(2), pages 207-215, June.
  2. Jaeger, Albert & Kunst, Robert M, 1990. "Seasonal Adjustment and Measuring Persistence in Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 47-58, January-M.
  3. Rodney Thom, 1995. "Inflation convergence in the EMS: Some additional evidence. A comment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 131(3), pages 577-586, September.
  4. Matei Demetrescu & Uwe Hassler, 2007. "Effect of neglected deterministic seasonality on unit root tests," Statistical Papers, Springer, vol. 48(3), pages 385-402, September.
  5. Campbell, John & Mankiw, Gregory, 1987. "Are Output Fluctuations Transitory?," Scholarly Articles 3122545, Harvard University Department of Economics.
  6. Mentz, Markus & Sebastian, Steffen P., 2003. "Inflation convergence after the introduction of the Euro," CFS Working Paper Series 2003/30, Center for Financial Studies (CFS).
  7. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
  8. Hassler, Uwe & Wolters, Jurgen, 1995. "Long Memory in Inflation Rates: International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 37-45, January.
  9. Olekalns, Nilss, 1994. "Testing for unit roots in seasonally adjusted data," Economics Letters, Elsevier, vol. 45(3), pages 273-279.
  10. Mark Holmes, 2002. "Panel data evidence on inflation convergence in the European Union," Applied Economics Letters, Taylor & Francis Journals, vol. 9(3), pages 155-158.
  11. 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.
  12. Ghysels, E. & Perron, P., 1990. "The Effect Of Seasonal Adjustment Filters On Tests For A Unit Root," Papers 355, Princeton, Department of Economics - Econometric Research Program.
  13. Siklos, Pierre L & Wohar, Mark E, 1997. "Convergence in Interest Rates and Inflation Rates across Countries and over Time," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 129-41, February.
  14. Franses, Philip Hans, 1991. "Moving average filters and unit roots," Economics Letters, Elsevier, vol. 37(4), pages 399-403, December.
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Citations

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Cited by:
  1. Wolters, Jürgen & Hassler, Uwe, 2005. "Unit root testing," Discussion Papers 2005/23, Free University Berlin, School of Business & Economics.
  2. Giovanni Caggiano & Efrem Castelnuovo, 2008. "Long Memory and Non-Linearities in International Inflation," "Marco Fanno" Working Papers 0076, Dipartimento di Scienze Economiche "Marco Fanno".
  3. Pedro M. G. Martins, 2010. "Fiscal Dynamics in Ethiopia: The Cointegrated VAR Model with Quarterly Data," Working Paper Series 0910, Department of Economics, University of Sussex.
  4. Pedro M G Martins, . "Fiscal Dynamics in Ethiopia: A Cointegrated VAR Model with Quarterly Data," Discussion Papers 10/05, University of Nottingham, CREDIT.

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