The impact of inflation on BRIC (countries): a dynamic panel threshold model evidence

Darko B. Vukovic () and Claudio Catenuto ()
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Darko B. Vukovic: People’s Friendship University of Russia (RUDN University)
Claudio Catenuto: Università Cattolica del Sacro Cuore

Indian Economic Review, 2023, vol. 58, issue 2, No 1, 259-280

Abstract: Abstract This manuscript presents the findings of a comprehensive study exploring the relationship between inflation and the equity indices of the four prominent emerging economies known as the BRIC countries: Brazil, Russia, India, and China. Our investigation involves the utilization of an unbalanced panel dataset covering the BRIC countries and employs a dynamic panel threshold model to analyze the intricate relationship between inflation and equity. The dataset encompasses the period from April 2010 to September 2021. In addition, our study employs several econometric tests, including the Durbin-Wu-Hausman, LaGrange Multiplier, Cragg-Donald Wald F, and Bai-Perron tests. Our analysis reveals the existence of two distinct regimes for the Consumer Price Index (CPI), with a threshold level identified at 6.45%. Above this threshold, we observe a negative correlation between inflation and equity, which exhibits a higher magnitude in absolute terms compared to the second regime, where inflation is positively correlated with the MSCI BRIC index. Notably, our model does not reveal any issues related to endogeneity. Furthermore, the Bai and Perron structural breaks model identifies two breakpoints or dates for India within the dataset. This study stands as a pioneering effort by employing the dynamic panel threshold model for analyzing the BRIC countries, setting it apart from previous research that predominantly relies on conventional econometric analysis. The incorporation of this more intricate and dynamic model with threshold effects aligns closely with the research objectives and the unique dataset employed in this study. The insights derived from this study hold potential implications for policymakers in formulating strategies aimed at safeguarding financial markets from the impacts of inflation.

Keywords: Inflation thresholds; Dynamic panel threshold model; BRIC; MSCI BRIC index; CPI (search for similar items in EconPapers)
JEL-codes: C01 E31 F21 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s41775-023-00200-0

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