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Euro-zone Inflation Rates: Stationary or Regime-wise Stationary Processes

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Author Info
Claude Lopez ()

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Abstract

This study investigates the stationary behavior of the inflation rates for the Euro- zone members and some neighboring countries, for the 1957:2 to 2007:3 period. The analysis uses univariate unit root tests with enhanced small-sample performances that allow up to two breaks in the intercept, namely those of Elliott et al. (1996) and Lopez (2008). The results strongly reject the unit root null hypothesis for all the countries. Furthermore, they demonstrate that some of the Euro-zone inflation rates are stationary and others are regime-wise stationary. While such results may reconcile some of the literature findings and provide empirical evidence that the Maastricht criterion is respected, they also highlight the importance of accounting for breaks when studying these series.

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File URL: http://www.artsci.uc.edu/collegedepts/economics/research/docs/Wppdf/2008-02.pdf
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Paper provided by University of Cincinnati, Department of Economics in its series University of Cincinnati, Economics Working Papers Series with number 2008-02.

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Date of creation: 2008
Date of revision: 2008
Handle: RePEc:cin:ucecwp:2008-02

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  1. Margarida Duarte, 2003. "The euro and inflation divergence in Europe," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 53-70. [Downloadable!]
  2. Charles Engel & John H. Rogers, 2004. "European product market integration after the euro," Economic Policy, CEPR, CES, MSH, vol. 19(39), pages 347-384, 07. [Downloadable!] (restricted)
  3. Honohan, Patrick & Lane, Philip R., 2004. "Exchange Rates and Inflation Under EMU: An Update," CEPR Discussion Papers 4583, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
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  5. Claude Lopez, 2008. "GLS-detrending and Regime-wise Stationarity Testing in Small Samples," University of Cincinnati, Economics Working Papers Series 2008-01, University of Cincinnati, Department of Economics, revised 2008. [Downloadable!]
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  6. Chadha, Jagjit S & Dimsdale, Nicholas H, 1999. "A Long View of Real Rates," Oxford Review of Economic Policy, Oxford University Press, vol. 15(2), pages 17-45, Summer.
  7. Fabio Busetti & Lorenzo Forni & Andrew Harvey & Fabrizio Venditti, 2007. "Inflation Convergence and Divergence within the European Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 95-121, June. [Downloadable!]
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  8. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec.. [Downloadable!] (restricted)
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