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Structural Breaks and Dynamic Characteristics of Inflation and Growth Rates of Monetary Aggregates

  • Igor Pelipas

    ()

    (Belarusian Economic Research and Outreach Center (BEROC))

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    The paper addresses the problem of determining the order of integration of inflation and growth rates of monetary aggregates under the multiple structural breaks in dynamics of these variables. Discussing the existent approaches for unit root and structural breaks testing, we propose the modified one where on the first stage the structural break points are determined endogenously by impulse indicator saturation technique and then the matching break points are utilized exogenously in the appropriate Dickey-Fuller unit root test. This approach allows unit root testing for any number of structural breaks. An application of the proposed approach to Belarusian data for 1995-2009 led us to conclusion that the rates of inflation both on the basis of GDP deflator and consumer price index, as well as the growth rates of monetary aggregates M0, M1, M, and M3 are the stationary variables with a changing mean. Consequently, these variables have the order of integration I(0). The determined dates of structural breaks correspond to regime changes in the dynamics of the examined variables and have a clear economic interpretation. The results presented in the paper are useful for econometric modelling of inflation and monetary policy.

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    File URL: http://eng.beroc.by/webroot/delivery/files/WP15_eng_Pelipas.pdf
    File Function: First version, 2011
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    Paper provided by Belarusian Economic Research and Outreach Center (BEROC) in its series BEROC Working Paper Series with number 15.

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    Length: 22 pages
    Date of creation: Sep 2011
    Date of revision:
    Handle: RePEc:bel:wpaper:15
    Contact details of provider: Web page: http://www.beroc.byEmail:


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    1. Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers 1494, Econometric Society.
    2. Maria Alberta Oliveira & Carlos Santos, 2010. "Looking for a change point in French monetary policy in the early eighties," Applied Economics Letters, Taylor & Francis Journals, vol. 17(4), pages 387-392.
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    4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    5. Castle, Jennifer L. & Doornik, Jurgen A. & Hendry, David F., 2012. "Model selection when there are multiple breaks," Journal of Econometrics, Elsevier, vol. 169(2), pages 239-246.
    6. Carlos Santos & Maria Alberta Oliveira, 2007. "Assessing French Inflation Persistence with Impulse Saturation Break Tests and Automatic General-to-Specific Modelling," Working Papers de Economia (Economics Working Papers) 10, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
    7. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche 9807, Universite de Montreal, Departement de sciences economiques.
    8. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
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    10. Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
    11. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    12. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
    13. David Hendry & Carlos Santos, 2010. "An Automatic Test of Super Exogeneity," Economics Series Working Papers 476, University of Oxford, Department of Economics.
    14. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
    15. David Hendry & Søren Johansen & Carlos Santos, 2008. "Automatic selection of indicators in a fully saturated regression," Computational Statistics, Springer, vol. 23(2), pages 337-339, April.
    16. 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.
    17. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
    18. Ericsson, Neil R & Hendry, David F & Prestwich, Kevin M, 1998. " The Demand for Broad Money in the United Kingdom, 1878-1993," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 289-324, March.
    19. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
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