Inflation stationarity during Latin American inflation: insights from unit root and structural break analysis

Abstract

Inflation stationarity has important theoretical and policy implications, yet most of the literature has focused on low inflation countries. This article investigates inflation stationarity in Brazil, Argentina, Chile, Mexico and Bolivia during a hyperinflationary period from 1980 to 2004. We test for structural breaks in inflation, discuss the breaks in terms of changes in monetary regimes, and test if accounting for these structural breaks changes the nonstationarity results for those nations that ‘fail’ the traditional Augmented Dickey–Fuller (ADF) test for inflation. All five are found to have inflation rates that are I(0) once the structural breaks analysis is incorporated into our unit root tests.

Keywords:

• Latin America
• inflation
• structural breaks
• monetary regimes

JEL Classification::

• O54
• E50
• O11

Notes

¹ Argentina had a −1.9% GDP per capita growth rate during the decade of the 1980s.

² Eventually, the Real became overvalued and was allowed to float in January 1999.