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

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  • Ventosa-Santaularària, Daniel
  • Gómez, Manuel

Abstract

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 fluc- tuates randomly around pre-specified targets.

Suggested Citation

  • Ventosa-Santaularària, Daniel & Gómez, Manuel, 2006. "Inflation and Breaks: the validity of the Dickey-Fuller test," MPRA Paper 58773, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58773
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    Cited by:

    1. Daniel Ventosa-Santaulària & José Eduardo Vera-Valdés, 2008. "Granger-Causality in the presence of structural breaks," Economics Bulletin, AccessEcon, vol. 3(61), pages 1-14.

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    More about this item

    Keywords

    Dickey-Fuller test; Mean Stationary Process; Structural Breaks.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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