經濟與管理論叢(Journal of Economics and Management)  
  Volume 12, No. 1  
  February, 2016  
     
 

Are Inflation Rates Mean-reverting Processes?

 
Evidence from Six Asian Countries
   
 

Shyh-Wei Chen

 
 

Department of International Business, Tunghai University, Taiwan

 
     
  Chi-Sheng Hsu  
  Department of International Business, Tunghai University, Taiwan  
     
  Cyun-Jhen Pen  
  Department of International Business, Chung Yuan Christian University, Taiwan  
   
 

Abstract

 

This paper tests for the (non)stationarity of inflation in six Asian countries, that is, Indonesia, Malaysia, the Philippines, Thailand, Singapore and India, by considering the possibility of structural breaks and nonlinearity. The results are mixed when a battery of conventional linear unit root tests is used. However, the inflation rate is shown to be a stationary process after considering the structural breaks and nonlinear properties of the threshold and exponential smooth transition. The mean reversion in inflation favors the hypothesis of the natural rate of inflation and the sticky-price model, indicating that any shock has a transitory effect on inflation. The implication of stationary inflation is that any shock has a transitory effect on inflation.

   

 

 

Keywords: inflation, stationarity, structural break, nonlinearity

 

 

JEL classification:  E31, C22

 

 
   

 

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