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

  • Claude Lopez

    ()

    (University of Cincinnati)

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. Finally, none of the identified breaks take place in the post Euro era.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I1-P25.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 1 ()
Pages: 238-243

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Handle: RePEc:ebl:ecbull:eb-08e30004
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  1. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  2. Weber, Axel A. & Beck, G√ľnter W., 2005. "Price stability, inflation convergence and diversity in EMU: Does one size fit all?," CFS Working Paper Series 2005/30, Center for Financial Studies (CFS).
  3. 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.
  4. Honohan, Patrick & Lane, Philip R., 2004. "Exchange Rates and Inflation Under EMU: An Update," CEPR Discussion Papers 4583, C.E.P.R. Discussion Papers.
  5. John H. Rogers & Gary Clyde Hufbauer & Erika Wada, 2001. "Price Level Convergence and Inflation in Europe," Working Paper Series WP01-1, Peterson Institute for International Economics.
  6. 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.
  7. Claude Lopez, 2005. "Improved Unit Root Tests with Changes in the Intercept," University of Cincinnati, Economics Working Papers Series 2005-04, University of Cincinnati, Department of Economics, revised 2006.
  8. 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.
  9. Riemer P. Faber & Ad C.J. Stokman, 2005. "Price Convergence in Europe from a Macro Perspective: Product Categories and Reliability," DNB Working Papers 034, Netherlands Central Bank, Research Department.
  10. 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.
  11. Margarida Duarte, 2003. "The euro and inflation divergence in Europe," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 53-70.
  12. 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.
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