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Mean reversion of inflation rates in 19 OECD countries: Evidence from panel Lm unit root tests with structural breaks

Author

Listed:
  • Chien-Chiang Lee

    (Department of Applied Economics, National Chung Hsing University)

  • Chun-Ping Chang

    (Institute for Interdisciplinary Studies, National Sun Yat-sen University)

Abstract

The paper applies the recently developed panel LM unit root tests with heterogeneous structural breaks by Im et al., [The Oxford Bulletin of Economics and Statistics, 2005] in order to re-examine the validity of mean reversion in the inflation rates of 19 OECD countries for the time period 1960-2004. Our empirical findings are favorable to the stationarity of the inflation ratesand therefore point to the absence of hyperinflation in the majority of the countries. The results indicate that most shocks to inflation rates are temporary and soon converge when we control for breaks, with the inflation rates showing mean reversion. Overall, some policy implications are obtained in this paper.

Suggested Citation

  • Chien-Chiang Lee & Chun-Ping Chang, 2007. "Mean reversion of inflation rates in 19 OECD countries: Evidence from panel Lm unit root tests with structural breaks," Economics Bulletin, AccessEcon, vol. 3(23), pages 1-15.
    • Handle: RePEc:ebl:ecbull:eb-05c30022
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    References listed on IDEAS

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    Cited by:

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    2. Luis A. Gil-Alana & Andrea Mervar & James E. Payne, 2017. "The stationarity of inflation in Croatia: anti-inflation stabilization program and the change in persistence," Economic Change and Restructuring, Springer, vol. 50(1), pages 45-58, February.
    3. Chang, Tsangyao & Ranjbar, Omid & Tang, D.P., 2013. "Revisiting the mean reversion of inflation rates for 22 OECD countries," Economic Modelling, Elsevier, vol. 30(C), pages 245-252.
    4. Jesús Clemente & María Dolores Gadea & Antonio Montañés & Marcelo Reyes, 2017. "Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries," Econometrics, MDPI, vol. 5(1), pages 1-17, February.
    5. Qian Guo & Huw Rhys & Xiaojing Song & Mark Tippett, 2016. "The Friedman rule and inflation targeting," The European Journal of Finance, Taylor & Francis Journals, vol. 22(14), pages 1414-1434, November.

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    More about this item

    Keywords

    Inflation;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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