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Is there Really a Unit Root in the Inflation Rate? More Evidence from Panel Data Models

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  • Basher, Syed A.
  • Westerlund, Joakim

Abstract

Time series unit root evidence suggests that inflation is nonstationary. By contrast, when using more powerful panel unit root tests, Culver and Papell (1997) find that inflation is stationary. In this paper, we test the robustness of this result by applying a battery of recent panel unit root tests. The results suggest that the stationarity of inflation holds even after controlling for crosssectional dependence and structural change.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 136.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:136

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Keywords: Unit Root; Inflation; Cross-Sectional Dependence; Structural Change;

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References

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  1. Garcia, R. & Perron, P., 1994. "An Analysis of the Real Interest rate Under Regime Shifts," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9428, Universite de Montreal, Departement de sciences economiques.
  2. Kyung-So Im & Junsoo Lee & Margie Tieslau, 2005. "Panel LM Unit-root Tests with Level Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 67(3), pages 393-419, 06.
  3. Culver, Sarah E & Papell, David H, 1997. "Is There a Unit Root in the Inflation Rate? Evidence from Sequential Break and Panel Data Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(4), pages 435-44, July-Aug..
  4. Par Osterholm, 2004. "Killing four unit root birds in the US economy with three panel unit root test stones," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(4), pages 213-216.
  5. Rose, Andrew Kenan, 1988. " Is the Real Interest Rate Stable?," Journal of Finance, American Finance Association, American Finance Association, vol. 43(5), pages 1095-1112, December.
  6. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, Elsevier, vol. 14(3), pages 313-334, June.
  7. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, Econometric Society, vol. 72(4), pages 1127-1177, 07.
  8. Wojciech Charemza & Daniela Hristova & Peter Burridge, 2005. "Is inflation stationary?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(8), pages 901-903.
  9. Josep Llu�s Carrion-i-Silvestre & Tom�s del Barrio-Castro & Enrique L�pez-Bazo, 2005. "Breaking the panels: An application to the GDP per capita," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 8(2), pages 159-175, 07.
  10. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  11. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  12. Mark Holmes, 2002. "Panel data evidence on inflation convergence in the European Union," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(3), pages 155-158.
  13. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 6(1), pages 217-259, 06.
  14. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, Elsevier, vol. 91(2), pages 201-226, August.
  15. Steven Cook, 2005. "Rank-based unit root testing in the presence of structural change under the null: simulation results and an application to US inflation," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(6), pages 607-617.
  16. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, Elsevier, vol. 122(1), pages 81-126, September.
  17. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
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Citations

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Cited by:
  1. Pär Österholm & Erik Hjalmarsson, 2007. "Testing for Cointegration Using the Johansen Methodology When Variables Are Near-Integrated," IMF Working Papers, International Monetary Fund 07/141, International Monetary Fund.
  2. Wojciech Charemza & Svetlana Makarova & Imran Shah, 2013. "Making the most of High Inflation," Discussion Papers in Economics, Department of Economics, University of Leicester 13/01, Department of Economics, University of Leicester.
  3. Benos, Nikos & Karagiannis, Stelios, 2013. "Do Cross-Section Dependence and Parameter Heterogeneity Matter? Evidence on Human Capital and Productivity in Greece," MPRA Paper 53326, University Library of Munich, Germany.
  4. Eijffinger, Sylvester C. W. & Qian, Zongxin, 2010. "Globalization and the Output-inflation Tradeoff: New Time Series Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7718, C.E.P.R. Discussion Papers.

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