Nonlinearity and Inflation Rate Differential Persistence: Evidence from the Eurozone
AbstractWe employ a linear unit root test as well as a nonlinear two-regime Threshold Autoregressive (TAR) unit root test to determine whether inflation differentials in the Eurozone during the period 1970-2009 were persistent or transitory. The results imply that inflation rate differentials in the Eurozone are characterized by threshold nonlinearity. After modeling the nonlinear characteristics of the series with the appropriate unit root test, our test's results reveal that inflation rate differentials in the Eurozone are mainly persistent. Our findings imply that the higher the increase of the inflation rate differential, the more persistent the inflation rate differential is likely to be.
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Bibliographic InfoPaper provided by University of Crete, Department of Economics in its series Working Papers with number 1011.
Length: 40 pages
Date of creation: 01 Jul 2010
Date of revision: 01 Oct 2010
EMU; Inflation Rate Differential; Unit Root; Nonlinearity; Threshold;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F15 - International Economics - - Trade - - - Economic Integration
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-23 (All new papers)
- NEP-CBA-2010-10-23 (Central Banking)
- NEP-EEC-2010-10-23 (European Economics)
- NEP-MON-2010-10-23 (Monetary Economics)
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- Hamza Bennani, 2013. "Does the ECB consider the persistence of inflation differentials?," Economics Bulletin, AccessEcon, vol. 33(3), pages 2129-2139.
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