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TESTING FOR STATIONARITY OF INFLATION RATES WITH COVARIATES
Author(s) -
Tsong Chingchuan,
Lee Chengfeng
Publication year - 2010
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2010.01251.x
Subject(s) - covariate , unit root , econometrics , univariate , inflation (cosmology) , unit root test , economics , null hypothesis , mean reversion , statistics , endogeneity , multivariate statistics , mathematics , cointegration , physics , theoretical physics
This paper distinguishes between the stationarity and nonstationarity of inflation in 18 OECD countries through several unit root tests with covariates. These covariate tests are more powerful than the conventional ones through correlated covariates. Both unit root and stationarity null hypotheses are tested in this study. Our empirical results indicate that the efficient univariate unit root tests fail to reject the unit‐root hypothesis for 15 countries, whereas the covariate tests provide strong evidence in support of mean reversion in inflation for almost all countries. Overall, the findings unveil new evidence in favor of stationarity in international inflation. Policy implications on the empirical results are provided as well.