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Inflation and breaks: the validity of the Dickey-Fuller test

  • Manuel Gomez


    (Department of Economics and Finance, Universidad de Guanajuato)

  • Daniel Ventosa-Santaularia


    (Department of Economics and Finance, Universidad de Guanajuato)

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    This article proves the asymptotic efficiency of the Dickey Fuller (DF) test when the Data Generating Process of the variable under consideration is in fact mean stationary with breaks. Monte Carlo simulations show that asymptotic properties remain valid for sample sizes of practical interest. We illustrate its performance by studying inflation rate series, a variable that should be stationary if the monetary authority follows an effective inflation targeting regime: shocks are short-lived, therefore, inflation fluctuates randomly around pre-specified targets.

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    Paper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EM200601.

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    Length: 9 pages
    Date of creation: Jun 2007
    Date of revision:
    Handle: RePEc:gua:wpaper:em200601
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