IDEAS home Printed from https://ideas.repec.org/p/gla/glaewp/2007_07.html
   My bibliography  Save this paper

Unit Roots in Inflation and Aggregation Bias

Author

Listed:
  • Joseph Byrne
  • Alexandros Kontonikas
  • Alberto Montagnoli

Abstract

In this paper, we examine whether UK inflation is characterized by aggregation bias using three sets of increasingly disaggregated inflation data and a battery of univariate and panel unit root tests. Our results support the existence of aggregation bias since while the unit root hypothesis cannot be rejected for aggregate inflation, it can be rejected for some of its sectoral components, with the rejection frequencies increasing when we use more disaggregate data. Results from structural break analysis indicate that monetary policy shifts are the main factor behind breaks in UK inflation. The panel results typically indicate that when sectoral inflation rates are pooled the unit root hypothesis can be rejected. Our results have important implications for applied econometric analysis, macroeconomic theory and for the conduct of monetary policy.

Suggested Citation

  • Joseph Byrne & Alexandros Kontonikas & Alberto Montagnoli, 2007. "Unit Roots in Inflation and Aggregation Bias," Working Papers 2007_07, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2007_07
    as

    Download full text from publisher

    File URL: http://www.gla.ac.uk/media/media_219099_en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tse, Yiuman & Booth, G. Geoffrey, 1996. "Common volatility and volatility spillovers between U.S. and Eurodollar interest rates: Evidence from the futures market," Journal of Economics and Business, Elsevier, vol. 48(3), pages 299-312, August.
    2. Franklin R. Edward, 1999. "Hedge Funds and the Collapse of Long-Term Capital Management," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 189-210, Spring.
    3. Neil Cooper & Cedric Scholtes, 2001. "Government bond market valuations in an era of dwindling supply," BIS Papers chapters, in: Bank for International Settlements (ed.), The changing shape of fixed income markets: a collection of studies by central bank economists, volume 5, pages 147-169, Bank for International Settlements.
    4. Eli M Remolona & Philip D Wooldridge, 2003. "The euro interest rate swap market," BIS Quarterly Review, Bank for International Settlements, March.
    5. repec:cdl:anderf:qt9s13f3zx is not listed on IDEAS
    6. Jun Liu & Francis A. Longstaff & Ravit E. Mandell, 2002. "The Market Price of Credit Risk: An Empirical Analysis of Interest Rate Swap Spreads," NBER Working Papers 8990, National Bureau of Economic Research, Inc.
    7. Duffie, Darrell & Singleton, Kenneth J, 1997. "An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September.
    8. Sun, Tong-sheng & Sundaresan, Suresh & Wang, Ching, 1993. "Interest rate swaps: An empirical investigation," Journal of Financial Economics, Elsevier, vol. 34(1), pages 77-99, August.
    9. the Study group on fixed income markets, 2001. "The changing shape of fixed income markets," BIS Working Papers 104, Bank for International Settlements.
    10. Study group on fixed income markets, 2001. "The changing shape of fixed income markets," BIS Papers chapters, in: Bank for International Settlements (ed.), The changing shape of fixed income markets: a collection of studies by central bank economists, volume 5, pages 1-43, Bank for International Settlements.
    11. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
    12. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Skorbiansky, Sharon Raszap & Saavoss, Monica & Camp, Kevin M., 2022. "The Economics of Plant-Based Milk," 2024 Annual Meeting, July 28-30, New Orleans, LA 322496, Agricultural and Applied Economics Association.
    2. Joseph P. Byrne & Alexandros Kontonikas & Alberto Montagnoli, 2010. "The Time‐Series Properties Of Uk Inflation: Evidence From Aggregate And Disaggregate Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 33-47, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Baum, Christopher F. & Caglayan, Mustafa & Stephan, Andreas & Talavera, Oleksandr, 2008. "Uncertainty determinants of corporate liquidity," Economic Modelling, Elsevier, vol. 25(5), pages 833-849, September.
    2. Somnath Chatterjee, 2005. "An Investigation Into The Linkages Between Euro And Sterling Swap Spreads," Working Papers 2005_1, Business School - Economics, University of Glasgow.
    3. Chung, Hon-Lun & Chan, Wai-Sum, 2010. "Impact of credit spreads, monetary policy and convergence trading on swap spreads," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 118-126, March.
    4. Antulio N. Bomfim, 2003. "Counterparty credit risk in interest rate swaps during times of market stress," Finance and Economics Discussion Series 2003-09, Board of Governors of the Federal Reserve System (U.S.).
    5. Gómez-Puig, Marta, 2008. "Monetary integration and the cost of borrowing," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 455-479, April.
    6. Broto, Carmen & Pérez-Quirós, Gabriel, 2015. "Disentangling contagion among sovereign CDS spreads during the European debt crisis," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 165-179.
    7. Jeannine Bailliu, 2000. "Private Capital Flows, Financial Development, and Economic Growth in Developing Countries," Staff Working Papers 00-16, Bank of Canada.
    8. Marfatia, Hardik A., 2017. "A fresh look at integration of risks in the international stock markets: A wavelet approach," Review of Financial Economics, Elsevier, vol. 34(C), pages 33-49.
    9. Jin, Xiaoye, 2015. "Volatility transmission and volatility impulse response functions among the Greater China stock markets," Journal of Asian Economics, Elsevier, vol. 39(C), pages 43-58.
    10. Eleni Constantinou & Robert Georgiades & Avo Kazandjian & George Kouretas, 2005. "Mean and variance causality between the Cyprus Stock Exchange and major equity markets," Working Papers 0501, University of Crete, Department of Economics.
    11. Baur, Dirk & Jung, Robert C., 2006. "Return and volatility linkages between the US and the German stock market," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 598-613, June.
    12. Robert J. Bianchi & Michael E. Drew & Thanula R. Wijeratne, 2010. "Systemic Risk, the TED Spread and Hedge Fund Returns," Discussion Papers in Finance finance:201004, Griffith University, Department of Accounting, Finance and Economics.
    13. Allen, David E. & Amram, Ron & McAleer, Michael, 2013. "Volatility spillovers from the Chinese stock market to economic neighbours," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 94(C), pages 238-257.
    14. Bank for International Settlements, 2003. "Guide to the international financial statistics," BIS Papers, Bank for International Settlements, number 14.
    15. Campbell, John Y. & Giglio, Stefano & Polk, Christopher & Turley, Robert, 2018. "An intertemporal CAPM with stochastic volatility," Journal of Financial Economics, Elsevier, vol. 128(2), pages 207-233.
    16. Du, Xiaodong & Yu, Cindy L. & Hayes, Dermot J., 2011. "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis," Energy Economics, Elsevier, vol. 33(3), pages 497-503, May.
    17. Serge Darolles & Jeremy Dudek & Gaëlle Le Fol, 2012. "Liquidity Contagion. The Emerging Sovereign Debt Markets example," Post-Print hal-01632803, HAL.
    18. Ghouse, Ghulam & Khan, Saud Ahmed & Habeeb, Kashif, 2019. "Information Transmission Among Equity Markets: A Comparison Between ARDL and GARCH Model," MPRA Paper 97925, University Library of Munich, Germany.
    19. Délèze, Frédéric & Korkeamäki, Timo, 2018. "Interest rate risk management with debt issues: Evidence from Europe," Journal of Financial Stability, Elsevier, vol. 36(C), pages 1-11.
    20. Eric Ghysels & Andrew Harvey & Eric Renault, 1995. "Stochastic Volatility," CIRANO Working Papers 95s-49, CIRANO.

    More about this item

    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
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gla:glaewp:2007_07. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Business School Research Team (email available below). General contact details of provider: https://edirc.repec.org/data/dpglauk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.