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Is the health care price inflation in US urban areas stationary? Evidence from panel unit root tests

Author

Listed:
  • Murthy, Vasudeva

    (Creighton University)

  • Okunade, Albert

    (University of Memphis)

Abstract

Purpose – This study aims to investigate, for the first time in the literature, the stochastic properties of the US aggregate health-care price inflation rate series, using the data on health-care inflation rates for a panel of 17 major US urban areas for the period 1966-2006. Design/methodology/approach – This goal is undertaken by applying the first- and second-generation panel unit root tests and the panel stationary test developed recently by Carrion-i-Silvestre et al. (2005) that allows for endogenously determined multiple structural breaks and is flexible enough to control for the presence of cross-sectional dependence. Findings – The empirical findings indicate that after controlling for the presence of cross-sectional dependence, finite sample bias, and asymptotic normality, the US aggregate health-care price inflation rate series can be characterized as a non-stationary process and not as a regime-wise stationary innovation process. Research limitations/implications – The research findings apply to understanding of health-care sector price escalation in US urban areas. These findings have timely implications for the understanding of the data structure and, therefore, constructs of economic models of urban health-care price inflation rates. The results confirming the presence of a unit root indicating a high degree of inflationary persistence in the health sector suggests need for further studies on health-care inflation rate persistence using the alternative measures of persistence. This study’s conclusions do not apply to non-urban areas. Practical implications – The mean and variance of US urban health-care inflation rate are not constant. Therefore, insurers and policy rate setters need good understanding of the interplay of the various factors driving the explosive health-care insurance rates over the large US metropolitan landscape. The study findings have implications for health-care insurance premium rate setting, health-care inflation econometric modeling and forecasting. Social implications – Payers (private and public employers) of health-care insurance rates in US urban areas should evaluate the value of benefits received in relation to the skyrocketing rise of health-care insurance premiums. Originality/value – This is the first empirical research focusing on the shape of urban health-care inflation rates in the USA.

Suggested Citation

  • Murthy, Vasudeva & Okunade, Albert, 2018. "Is the health care price inflation in US urban areas stationary? Evidence from panel unit root tests," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 23(44), pages 77-94.
  • Handle: RePEc:ris:joefas:0120
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    Cited by:

    1. Ahmed Qahtan, Anwar Saeed & Xu, Helian & Abdo, AL-Barakani, 2021. "Stochastic convergence of disaggregated energy consumption per capita and its catch-up rate: An independent analysis of MENA net oil-exporting and importing countries," Energy Policy, Elsevier, vol. 150(C).

    More about this item

    Keywords

    Cross-sectional dependence; Health-care price inflation rate; Multiple structural breaks; Panel unit root tests;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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