Are Inflation Rates Stationary in 11 Mediterranean Countries? Evidence from Univariate and Panel Unit Root Tests
Keywords:Inflation, Monetary Policy, Stationarity, Unit Root, Structural Breaks
In this study, we employ unit root tests that allow for heterogeneous structural breaks developed by Lee and Strazicich (2003), Narayan and Popp (2010), and Im et al. (2010) to examine the stationarity of inflation rates in 11 Mediterranean countries over the period 1960-2011. The empirical findings support the stationarity of inflation rates when structural breaks are allowed. Thus, most shocks to inflation rates appear to be temporary and inflation rates show mean reversion. In addition, the results indicate some important policy implications.