Threshold, smooth transition and mean reversion in inflation: New evidence from European countries

Chen, Shyh‐Wei; Hsu, Chi-Sheng

doi:10.1016/j.econmod.2015.11.006

Cited by 9 publications

(8 citation statements)

References 90 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Their results show that inflation series exhibit mean reversion behavior for all 22 OECD countries investigated. Chen and Hsu (2016) present similar conclusions using the unit root tests developed by Leybourne et al (1998) which employ a logistic function aiming at capturing the occurrence of smooth breaks in the deterministic component. However, it should be noted that they do not discard the questionable hypothesis that inflation rates have a deterministic trend (linear or nonlinear).…”

Section: Empirical Applicationsupporting

confidence: 58%

“…Regarding inflation dynamics, changes in monetary policy, which reflect the evolving preferences for price stability over time, seem to have affected parameter constancy in linear models. Chang et al (2013) and Chen and Hsu (2016), inter alia, presented results pointing to the occurrence of structural breaks in the deterministic component of inflation. Levin and Piger (2003) and Beechey and Österholm (2012) proposed methodologies which allow for the assessment of whether shifts in monetary policy caused changes in the autoregressive parameter.…”

Section: Introductionmentioning

confidence: 90%

See 1 more Smart Citation

A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach*

2021

View full text Add to dashboard Cite

This paper introduces a simple and easy to implement procedure to test for changes in persistence. The time-varying parameter that characterizes persistence changes under the alternative hypothesis is approximated by a parsimonious cosine function. The new test procedure is the minimum of a t-statistic, computed from a test regression that considers a set of reasonable values for a frequency term that is used to evaluate the time varying properties of persistence. The asymptotic distributions of the new tests are derived and critical values are provided. An indepth Monte Carlo analysis shows that the new procedure has important power gains when compared to the local GLS de-trended Dickey-Fuller (DF GLS) type tests introduced by Elliott et al. (1996) under various data generating processes with persistence changes. Moreover, an empirical application to OECD countries' inflation series shows that for most countries analysed persistence was high in the first half of the sample and subsequently decreased. These results are compatible with modern macroeconomic theories that point to changes in inflation behavior in the early 1980s and also with recent empirical evidence against the I(1)-I(0) dichotomy.

show abstract

Section: Empirical Applicationsupporting

confidence: 58%

Section: Introductionmentioning

confidence: 90%

A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach*

2021

View full text Add to dashboard Cite

show abstract

“…Therefore, enabling investors to forecast future returns on the basis of their historical value helping them in earning above average returns. Thus, supporting the studies of Chen and Hsu (2016), Vveinhardt et al (2016), Chaves and Viswanathan (2016), Lal et al (2016), Chaudhuri and Wu (2003), Riaz (2014), Poterba and Summers (1987), Malliaropulos and Priestley (1996), Mustafa and Ahmed (2013), Balvers et al (2000) etc. who also found the existence of mean reversion in different stock indices of the world.…”

Section: Discussion Conclusion and Recommendationsmentioning

confidence: 88%

“…The debate of mean reversion has been going since the 1970s. As the literature gave both evidence in support and against of mean reversion (e.g., Chen, Hsu 2016;Oikarinen, Schindler 2015;Hart et al 2015;Annaert, Hyfte 2005;Borges 2011;Chaudhuri, Wu 2003;Lock 2007;Hakim, Neaime 2003;Yilanci 2012;Chen et al 2012;etc.). However, the literature fails to provide enough evidence of mean reversion in stock markets indices of Pakistan.…”

Section: Introductionmentioning

confidence: 99%

Speed of Mean Reversion: An Empirical Analysis of Kse, Lse and Ise Indices

Palwasha

Ahmad

Ahmed

et al. 2018

Technological and Economic Development of Economy

View full text Add to dashboard Cite

Abstract. The purpose of this study is to determine the presence of mean reversion in the stock markets indices of Pakistan, moreover, to measure, and compare the speed of mean reversion of the stock markets indices across Pakistan. In order to carry out the research study, the daily data of three stock indices of Pakistan such as: KSE-100, LSE-25 and ISE-10 are collected from 2003 to 2014. After the application of tests such as ARCH and GARCH, it was found that returns series of KSE-100, LSE-25 and ISE-10 indices exhibit mean reversion, indicating that the returns revert back to their historical value after reaching an extreme value. Further, the mean reversion rate shows that KSE-100 index has the slowest mean reversion, however, the ISE-10 index has the fastest mean reversion among the three indices. Therefore, the results of the study concluded that KSE-100 index, due to the slowest mean reversion rate has higher volatility over a longer period of time. On the contrary, since, ISE-10 index has exhibited the fastest mean reversion with the lowest volatility as compared to others. But due to fast mean reversion rate, it will help investors to gain profits over a shorter period of time. Thus, it can be recommended that the investor willing to bear the risk of time and looking for long-term investment should invest in KSE-100 index. However, investors looking for higher profits in a shorter period can invest in the ISE-10 index but with higher risk-returns trade-off.

show abstract

“…Ball (1992) indicated that high inflation reduces nominal rigidity and thus it steepens the short-run Phillips curve; a steeper Phillips curve implies that inflation varies more when the demand fluctuates. Civelli and Zaniboni (2014) and Chen and Hsu (2016) concluded that the responses of inflation to monetary shocks are hump-shaped. Ungar and Zilberfarb (1993) indicated that the relationship between inflation and uncertainty is significant only during the high inflation.…”

Section: Literature Reviewmentioning

confidence: 99%

Asymmetric Causality Between Inflation and Uncertainty: Evidences from 33 Developed and Developing Countries

Hajamini

2019

J. Quant. Econ.

View full text Add to dashboard Cite

Empirical studies have provided conflicting findings about the relationship between inflation and inflation uncertainty. Thus, the direction of the causality is still questionable. The present paper is aimed to extend the existing literature using non-linearity models and asymmetric causality tests. For this purpose, the data for 33 developed and developing countries during 1988Q4-2016Q3 is used. The results showed an asymmetry in the inflation behavior which is specified by smooth transition process, as well as separating positive and negative shocks observed in causality test. The asymmetric causality between inflation and inflation uncertainty is confirmed in most countries, although the empirical evidence in favor of Cukierman-Meltzer hypothesis is found to be weaker than Friedman-Ball hypothesis.

show abstract

Threshold, smooth transition and mean reversion in inflation: New evidence from European countries

Cited by 9 publications

References 90 publications

A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach*

A Re‐Examination of Inflation Persistence Dynamics in OECD Countries: A New Approach*

Speed of Mean Reversion: An Empirical Analysis of Kse, Lse and Ise Indices

Asymmetric Causality Between Inflation and Uncertainty: Evidences from 33 Developed and Developing Countries

Contact Info

Product

Resources

About