Structural Breaks and Dynamic Characteristics of Inflation and Growth Rates of Monetary Aggregates

Igor Pelipas ()
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Igor Pelipas: Belarusian Economic Research and Outreach Center (BEROC)

No 15, BEROC Working Paper Series from Belarusian Economic Research and Outreach Center (BEROC)

Abstract: The paper addresses the problem of determining the order of integration of inflation and growth rates of monetary aggregates under the multiple structural breaks in dynamics of these variables. Discussing the existent approaches for unit root and structural breaks testing, we propose the modified one where on the first stage the structural break points are determined endogenously by impulse indicator saturation technique and then the matching break points are utilized exogenously in the appropriate Dickey-Fuller unit root test. This approach allows unit root testing for any number of structural breaks. An application of the proposed approach to Belarusian data for 1995-2009 led us to conclusion that the rates of inflation both on the basis of GDP deflator and consumer price index, as well as the growth rates of monetary aggregates M0, M1, M, and M3 are the stationary variables with a changing mean. Consequently, these variables have the order of integration I(0). The determined dates of structural breaks correspond to regime changes in the dynamics of the examined variables and have a clear economic interpretation. The results presented in the paper are useful for econometric modelling of inflation and monetary policy.

Keywords: inflation; monetary aggregates; unit root test; structural brakes; impulse indicator saturation (search for similar items in EconPapers)
JEL-codes: C22 C51 E31 E51 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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