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Mean reversion of inflation rates in 19 OECD countries: Evidence from panel Lm unit root tests with structural breaks

  • Chien-Chiang Lee

    ()

    (Department of Applied Economics, National Chung Hsing University)

  • Chun-Ping Chang

    ()

    (Institute for Interdisciplinary Studies, National Sun Yat-sen University)

The paper applies the recently developed panel LM unit root tests with heterogeneous structural breaks by Im et al., [The Oxford Bulletin of Economics and Statistics, 2005] in order to re-examine the validity of mean reversion in the inflation rates of 19 OECD countries for the time period 1960-2004. Our empirical findings are favorable to the stationarity of the inflation ratesand therefore point to the absence of hyperinflation in the majority of the countries. The results indicate that most shocks to inflation rates are temporary and soon converge when we control for breaks, with the inflation rates showing mean reversion. Overall, some policy implications are obtained in this paper.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 3 (2007)
Issue (Month): 23 ()
Pages: 1-15

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Handle: RePEc:ebl:ecbull:eb-05c30022
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  11. Camarero, M. & Esteve, V. & Tamarit, C., 1996. "Price Convergence of Periphical European Countries on the Way to the EMU: A Time Series Approach," Weiss Center Working Papers 96-2, Wharton School - Weiss Center for International Financial Research.
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  17. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
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  25. repec:dgr:uvatin:20010029 is not listed on IDEAS
  26. Sen, Amit, 2003. "On Unit-Root Tests When the Alternative Is a Trend-Break Stationary Process," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 174-84, January.
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