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2006•Bulletin of Economic ResearchOpen access

INFLATION TARGETING AND THE STATIONARITY OF INFLATION: NEW RESULTS FROM AN ESTAR UNIT ROOT TEST

Andros Gregoriou, Alexandros Kontonikas

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Abstract

In this paper, we examine the time series properties of inflation in seven countries that have adopted inflation targeting. Unlike previous studies, we utilize a non-linear mean reverting adjustment mechanism for inflation and we discover that, although deviations of inflation from the target can exhibit a region of non-stationary behaviour, overall they are stationary indicating successful targeting implementation.

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In this paper, we examine the time series properties of inflation in seven countries that have adopted inflation targeting. Unlike previous studies, we utilize a non-linear mean reverting adjustment mechanism for inflation and we discover that, although deviations of inflation from the target can exhibit a region of non-stationary behaviour, overall they are stationary indicating successful targeting implementation.

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Available abstract

In this paper, we examine the time series properties of inflation in seven countries that have adopted inflation targeting. Unlike previous studies, we utilize a non-linear mean reverting adjustment mechanism for inflation and we discover that, although deviations of inflation from the target can exhibit a region of non-stationary behaviour, overall they are stationary indicating successful targeting implementation.

Key concepts: Unit root, Inflation (cosmology), Economics, Unit root test, Inflation targeting, Econometrics, Mean reversion, Series (stratigraphy)

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