Is there really a unit root in the inflation rate? More evidence from panel data models

Abstract

Time series unit root evidence suggests that inflation is nonstationary. By contrast, when using more powerful panel unit root tests, Culver and Papell (1997) find that inflation is stationary. In this article, we test the robustness of this result by applying a battery of recent panel unit root tests. The results suggest that the stationarity of inflation holds even after controlling for cross-sectional dependence and structural change.

Acknowledgements

We are grateful to the editor, Mark Taylor, for helpful comments and suggestions on an earlier version of the paper. Any remaining errors are ours. Westerlund gratefully acknowledges financial support from the Jan Wallander and Tom Hedelius Foundation, research grant number P2005-0117:1.

Notes

¹ The data is downloadable from Journal of Applied Econometrics data archive available online at http://qed.econ.queensu.ca/jae/

² Results are not shown here to save space, but are available from the corresponding author upon request.