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Multiple Structural Breaks and Inflation Persistance in Belarus

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  • Igor Pelipas
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    Abstract

    This paper address the issue of assessing inflation persistence in Belarus using quarterly seasonally adjusted data over 1996–2011. To detect multiple structural breaks during the analyzed period, we applied recently developed and practically implemented in OxMetrics software impulse indicator saturation technique. Impulse indicator saturation break test allowed us to detect three structural breaks in dynamics of GDP deflator inflation and CPI inflation, including one at the end of the examined sample. All detected break dates have a clear-cut economic interpretation. Taking these structural brakes into account, while testing for dynamics properties of inflation and its persistence, we found that GDP deflator inflation and CPI inflation in Belarus are stationary variables with the changing means. Formal unit root testing with multiple structural breaks demonstrated that non-stationarity is rejected at one per cent significance level. The point estimates if inflation persistence for GDP deflator and CPI inflation are quite small (0.32 and 0.53 respectively). GDP deflator inflation and CPI inflation return to its equilibrium level after a shock in about 1.5 and 2 quarter correspondently. Thus, one can consider inflation persistence in Belarus over the sample period as a quite moderate. These results have the explicit policy implications. Low inflation persistence in Belarus is a sound prerequisite for macroeconomic stabilization and anti-inflation monetary policy. Additionally, the stationarity of inflation can be considered as an important element of the technical possibilities of implementing inflation targeting in Belarus.

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    File URL: http://eng.beroc.by/webroot/delivery/files/WP21_eng_Pelipas.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Belarusian Economic Research and Outreach Center (BEROC) in its series BEROC Working Paper Series with number 21.

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    Length: 21 pages
    Date of creation: Dec 2012
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    Handle: RePEc:bel:wpaper:21

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    Related research

    Keywords: inflation persistence; univariate model; multiple structural brakes; means reversion; impulse indicator saturation; Autometrics;

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    1. Carlos Santos & David Hendry, 2006. "Saturation in Autoregressive Models," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 24, pages 8-19, December.
    2. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
    3. Dias, Daniel A. & Marques, Carlos Robalo, 2010. "Using mean reversion as a measure of persistence," Economic Modelling, Elsevier, vol. 27(1), pages 262-273, January.
    4. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    5. Robalo Marques, Carlos, 2004. "Inflation persistence: facts or artefacts?," Working Paper Series 0371, European Central Bank.
    6. Maria Alberta Oliveira & Carlos Santos, 2010. "Looking for a change point in French monetary policy in the early eighties," Applied Economics Letters, Taylor & Francis Journals, vol. 17(4), pages 387-392.
    7. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    8. Carlos Santos & David Hendry & Soren Johansen, 2008. "Automatic selection of indicators in a fully saturated regression," Computational Statistics, Springer, vol. 23(2), pages 317-335, April.
    9. Igor Pelipas, 2011. "Structural Breaks and Dynamic Characteristics of Inflation and Growth Rates of Monetary Aggregates," BEROC Working Paper Series 15, Belarusian Economic Research and Outreach Center (BEROC).
    10. Neil R. Ericsson & James G. MacKinnon, 2000. "Distributions of Error Correction Tests for Cointegration," Econometric Society World Congress 2000 Contributed Papers 0561, Econometric Society.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    12. David Hendry & Carlos Santos, 2010. "An Automatic Test of Super Exogeneity," Economics Series Working Papers 476, University of Oxford, Department of Economics.
    13. Castle, Jennifer L. & Doornik, Jurgen A. & Hendry, David F., 2012. "Model selection when there are multiple breaks," Journal of Econometrics, Elsevier, vol. 169(2), pages 239-246.
    14. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1326-1358, April.
    15. Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
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