Inflation and breaks: the validity of the Dickey-Fuller test
AbstractThis article proves the asymptotic efficiency of the Dickey Fuller (DF) test when the Data Generating Process of the variable under consideration is in fact mean stationary with breaks. Monte Carlo simulations show that asymptotic properties remain valid for sample sizes of practical interest. We illustrate its performance by studying inflation rate series, a variable that should be stationary if the monetary authority follows an effective inflation targeting regime: shocks are short-lived, therefore, inflation fluctuates randomly around pre-specified targets.
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Bibliographic InfoPaper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EM200601.
Length: 9 pages
Date of creation: Jun 2007
Date of revision:
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Dickey-Fuller test; Mean Stationary Process; Structural Breaks;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-02 (All new papers)
- NEP-ECM-2006-07-02 (Econometrics)
- NEP-MAC-2006-07-02 (Macroeconomics)
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