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Are Inflation Rates Stationary in the Western Balkan Countries? Evidence from Unit Root Tests

Author

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  • Saša Obradović
  • Nemanja Lojanica

Abstract

Monitoring of inflation rate dynamics is one of the most important tasks in order to identify the current economic conditions of the observed countries. The aim of this study is to examine the unit root properties of inflation in the Western Balkan countries. It also investigates the existence of structural breaks and nonlinearity. The time horizon encompasses the period 2006Q1-2020Q2. The results suggest that the inflation in Albania and Montenegro manifests a nonstationary process and structural breaks. The macroeconomic shocks will have more persistent effects on the inflation rate if it is characterized by nonstationarity. The inflation rates of Serbia and Bosnia and Herzegovina are characterized by nonlinear mean reverting behaviour. This implies less costly implementation of the proclaimed monetary strategy.

Suggested Citation

  • Saša Obradović & Nemanja Lojanica, 2022. "Are Inflation Rates Stationary in the Western Balkan Countries? Evidence from Unit Root Tests," Politická ekonomie, Prague University of Economics and Business, vol. 2022(4), pages 421-439.
    • Handle: RePEc:prg:jnlpol:v:2022:y:2022:i:4:id:1362:p:421-439
    DOI: 10.18267/j.polek.1362
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    More about this item

    Keywords

    Inflation; unit root; nonlinearity; structural break; nonstationarity;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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