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Mean reversion of inflation rates in seven Eastern European countries: An application of a fourier quantile unit root test

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  • Deng-Kui Si
  • Xiao-Lin Li

Abstract

This paper applies recently developed Fourier quantile unit root test to investigate time-series property of inflation in seven Eastern European countries. This method combines the quantile unit root test with smooth unknown multiple breaks through Fourier function, and has good size and power when the data follows heavy tailed distribution. Our results show that the inflation rates are stationary within each quantile for Czech Republic, Bulgaria and Lithuania, while the other four countries contain a unit root within some quantiles. We also find the speed of inflation adjustment towards to its long-run equilibrium for each country is asymmetric. Our results have important policy implications for monetary authorities in these Eastern European countries.

Suggested Citation

  • Deng-Kui Si & Xiao-Lin Li, 2018. "Mean reversion of inflation rates in seven Eastern European countries: An application of a fourier quantile unit root test," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(2), pages 145-167, February.
    • Handle: RePEc:taf:jitecd:v:27:y:2018:i:2:p:145-167
    DOI: 10.1080/09638199.2017.1350200
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