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Is there a unit root in the inflation rate? New evidence from panel data models with multiple structural breaks

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  • Paresh Kumar Narayan
  • Seema Narayan

Abstract

In this article, we examine whether or not the inflation rate for 17 OECD countries can be modelled as a stationary process. We find that (1) conventional univariate unit root tests without any structural breaks generally reveal that the inflation rate contains a unit root; (2) the KPSS univariate test with multiple structural breaks reveals that for 10 out of 17 countries inflation is stationary; and (3) the KPSS panel unit root test reveals strong evidence for stationarity of the inflation rate for panels consisting of countries which were declared nonstationary by univariate tests.

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  • Paresh Kumar Narayan & Seema Narayan, 2010. "Is there a unit root in the inflation rate? New evidence from panel data models with multiple structural breaks," Applied Economics, Taylor & Francis Journals, vol. 42(13), pages 1661-1670.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:13:p:1661-1670
    DOI: 10.1080/00036840701721596
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    1. Marvin Goodfriend & Robert G. King, 2001. "The Case for Price Stability," NBER Working Papers 8423, National Bureau of Economic Research, Inc.
    2. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
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    Cited by:

    1. Su Zhou, 2013. "Nonlinearity and stationarity of inflation rates: evidence from the euro-zone countries," Applied Economics, Taylor & Francis Journals, vol. 45(7), pages 849-856, March.
    2. Dogru, Bülent, 2015. "Is Per Capıta Real GDP Stationary in High Income OECD Countrıes? Evidence from Panel Unıt Root Test With Multiple Structural Breaks," MPRA Paper 63856, University Library of Munich, Germany.
    3. Fredrik N. G. Andersson & Yushu Li, 2020. "Are Central Bankers Inflation Nutters? An MCMC Estimator of the Long-Memory Parameter in a State Space Model," Computational Economics, Springer;Society for Computational Economics, vol. 55(2), pages 529-549, February.
    4. Yaya OlaOluwa S., 2018. "Another Look At The Stationarity Of Inflation Rates In Oecd Countries: Application Of Structural Break-Garch-Based Unit Root Tests," Statistics in Transition New Series, Polish Statistical Association, vol. 19(3), pages 477-493, September.
    5. Jang, Tae-Seok & Sacht, Stephen, 2021. "Forecast heuristics, consumer expectations, and New-Keynesian macroeconomics: A Horse race," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 493-511.
    6. Georgios P. Kouretas & Mark E. Wohar, 2012. "The dynamics of inflation: a study of a large number of countries," Applied Economics, Taylor & Francis Journals, vol. 44(16), pages 2001-2026, June.
    7. Luis A. Gil-Alana & Andrea Mervar & James E. Payne, 2017. "The stationarity of inflation in Croatia: anti-inflation stabilization program and the change in persistence," Economic Change and Restructuring, Springer, vol. 50(1), pages 45-58, February.
    8. Junttila, Juha & Korhonen, Marko, 2012. "The role of inflation regime in the exchange rate pass-through to import prices," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 88-96.
    9. Diego Moccero & Shingo Watanabe & Boris Cournède, 2011. "What Drives Inflation in the Major OECD Economies?," OECD Economics Department Working Papers 854, OECD Publishing.
    10. Yaya, OlaOluwa S & Ogbonna, Ahamuefula & Atoi, Ngozi V, 2019. "Are inflation rates in OECD countries actually stationary during 2011-2018? Evidence based on Fourier Nonlinear Unit root tests with Break," MPRA Paper 93937, University Library of Munich, Germany.
    11. Narayan, Paresh Kumar, 2014. "Response of inflation to shocks: New evidence from Sub-Saharan African countries," Economic Modelling, Elsevier, vol. 36(C), pages 378-382.
    12. Narayan, Paresh Kumar & Popp, Stephan, 2011. "An application of a new seasonal unit root test to inflation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 707-716, October.
    13. Devpura, Neluka & Sharma, Susan Sunila & Harischandra, P.K.G. & Pathberiya, Lasitha R.C., 2021. "Is inflation persistent? Evidence from a time-varying unit root model," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    14. Ahmad Zubaidi Baharumshah & Siew-Voon Soon, 2014. "Inflation, inflation uncertainty and output growth: what does the data say for Malaysia?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(3), pages 370-386, May.
    15. Janesh Sami, 2020. "Time Series Dynamics of Sugar Export Earnings in Fiji with Multiple Endogenous Structural Breaks: Implications for EU Sugar and Industry Reforms," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 169-189, March.

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