Inflation stationarity during Latin American inflation: insights from unit root and structural break analysis

Tony Caporale · Julia Paxton

11 citations0/0 files storedApplied Economics

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Abstract

Inflation stationarity has important theoretical and policy implications, yet most of the literature has focused on low inflation countries. This article investigates inflation stationarity in Brazil, Argentina, Chile, Mexico and Bolivia during a hyperinflationary period from 1980 to 2004. We test for structural breaks in inflation, discuss the breaks in terms of changes in monetary regimes, and test if accounting for these structural breaks changes the nonstationarity results for those nations that ‘fail’ the traditional Augmented Dickey–Fuller (ADF) test for inflation. All five are found to have inflation rates that are I(0) once the structural breaks analysis is incorporated into our unit root tests.

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References

1988Testing for a Unit Root in Time Series Regression 1989The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis 2002Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis 1999The Science of Monetary Policy: A New Keynesian Perspective 1991Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation 2001LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power 2003Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks 1992Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis

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2016How credible is inflation targeting in Asia? A quantile unit root perspective 2016Testing unit roots, structural breaks and linearity in the inflation rates of the G7 countries with fractional dependence techniques

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