A re-examination of the stationarity of inflation
In a recent examination of the integrated nature of inflation, Culver and Papell (Journal of Applied Econometrics, 1997) applied a range of unit root and stationarity tests to data from a panel of 13 OECD economies. The results obtained were mixed. While little evidence of stationarity was detected using univariate methods, rejection of the unit root hypothesis was observed under panel data unit root testing, although rejection was found to be sensitive to cross-sectional variation. In this note the results of Culver and Papell are reconsidered in light of conditional heteroskedasticity detected in the inflation rate series. Using a more appropriate univariate testing procedure combining local-to-unity detrending and joint maximum likelihood estimation of a unit root testing equation and GARCH process, strong evidence in favour of stationarity is detected in 11 of 13 economies examined. In contrast to the univariate findings of Culver and Papell, the results obtained herein using an alternative univariate procedure provide evidence in support of their I(0) inference drawn using panel methods. Copyright © 2009 John Wiley & Sons, Ltd.
Volume (Year): 24 (2009)
Issue (Month): 6 ()
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/0883-7252/|
|Order Information:|| Web: http://www3.interscience.wiley.com/jcatalog/subscribe.jsp?issn=0883-7252 Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992.
"Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?,"
Journal of Econometrics,
Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Seo, Byeongseon, 1999. "Distribution theory for unit root tests with conditional heteroskedasticity1," Journal of Econometrics, Elsevier, vol. 91(1), pages 113-144, July.
- Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996.
"Efficient Tests for an Autoregressive Unit Root,"
Econometric Society, vol. 64(4), pages 813-36, July.
- Tom Doan, . "GLSDETREND: RATS procedure to perform local to unity GLS detrending," Statistical Software Components RTS00077, Boston College Department of Economics.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
- Tom Doan, . "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Cook, Steven, 2006. "The impact of GARCH on asymmetric unit root tests," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 745-752.
- Perron, Pierre & Vogelsang, Timothy J, 1992.
"Nonstationarity and Level Shifts with an Application to Purchasing Power Parity,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 10(3), pages 301-20, July.
- Vogelsang, T.I. & Perron, P., 1991. "Nonstationary and Level Shifts With An Application To Purchasing Power Parity," Papers 359, Princeton, Department of Economics - Econometric Research Program.
- Todd E. Clark, 2003.
"Disaggregate evidence on the persistence of consumer price inflation,"
Research Working Paper
RWP 03-11, Federal Reserve Bank of Kansas City.
- Todd E. Clark, 2006. "Disaggregate evidence on the persistence of consumer price inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(5), pages 563-587.
- Johansen, S., 1991.
"Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand Data,"
78, Helsinki - Department of Economics.
- Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
- Pierre Perron & Gabriel RodrÃguez, .
"Residuals-based Tests for Cointegration with GLS Detrended Data,"
Boston University - Department of Economics - Working Papers Series
wp2015-017, Boston University - Department of Economics, revised 19 Oct 2015.
- Perron, P. & Rodriguez, G., 2000. "Residual Based Tests for Cointegration with GLS Detrended Data," Working Papers 0004e, University of Ottawa, Department of Economics.
- Kim, Kiwhan & Schmidt, Peter, 1993. "Unit root tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 59(3), pages 287-300, October.
- Donald W.K. Andrews, 1999.
"Testing When a Parameter Is on the Boundary of the Maintained Hypothesis,"
Cowles Foundation Discussion Papers
1229, Cowles Foundation for Research in Economics, Yale University.
- Andrews, Donald W K, 2001. "Testing When a Parameter Is on the Boundary of the Maintained Hypothesis," Econometrica, Econometric Society, vol. 69(3), pages 683-734, May.
- Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb..
- Levin, Andrew T. & Piger, Jeremy M., 2004.
"Is inflation persistence intrinsic in industrial economies?,"
Working Paper Series
0334, European Central Bank.
- Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
- Andrew Levin & Jeremy Piger, 2003. "Is Inflation Persistence Intrinsic in Industrial Economies?," Computing in Economics and Finance 2003 298, Society for Computational Economics.
- Serena Ng & Pierre Perron, 2001.
"LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Econometric Society, vol. 69(6), pages 1519-1554, November.
- Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
- Cook, Steven, 2008. "Joint maximum likelihood estimation of unit root testing equations and GARCH processes: Some finite-sample issues," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 77(1), pages 109-116.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Brooks, Chris & Rew, Alistair G, 2002. "Testing for a Unit Root in a Process Exhibiting a Structural Break in the Presence of GARCH Errors," Computational Economics, Springer;Society for Computational Economics, vol. 20(3), pages 157-76, December.
- Steven Cook, 2006. "The robustness of modified unit root tests in the presence of GARCH," Quantitative Finance, Taylor & Francis Journals, vol. 6(4), pages 359-363.
This item is featured on the following reading lists or Wikipedia pages:
- A re-examination of the stationarity of inflation (JAE 2009) in ReplicationWiki
When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:24:y:2009:i:6:p:1047-1053. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.